uns electric, inc. integrated resource plan march 1, … preliminary integrated resource plan march...

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UNSElectric,Inc.

2016PreliminaryIntegratedResourcePlan

March1,2016


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UNSElectric

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Foreword New environmental regulations, emerging technologies and changing energy needs have reinforced the importance of long‐term resource planning to UNS Electric and other electric utilities. Whatever the future may bring, our 2016 preliminary Integrated Resource Plan (“IRP”) outlines our strategy for ensuring that UNS Electric’s safe, reliable electric service remains a constant in our complex, evolving industry. We will continue to expand our use of cost‐effective renewable energy resources and energy efficiency programs for customers. In 2016, we’ll add 35‐megawatt (“MW”) of solar capacity at UNS Electric, increasing the total renewable energy portfolio to 62 MW. We also will expand our energy efficiency resources through several new programs available this year. In the future, demand response partnerships with customers could help UNS Electric manage peak load demands while reducing the need for new infrastructure. As requested by the Commission, this preliminary IRP report addresses the status of emerging resource options like energy storage technologies and small nuclear reactors. Although not all options are viable at this time, we will continue to assess their potential value as part of our resource planning process. Since filing its 2014 IRP, UNS Electric has strengthened its generating portfolio and reduced its reliance on the wholesale energy market through the purchase of a 138 MW share of the efficient natural gas‐fired Gila River Power Station in Gila Bend. Thefast‐ramping capability of this efficient resource makes it a critical compoment of our long‐term strategy to expand use of renewable resources. UNS Electric continues to evaluate the potential impact of the Clean Power Plan (“CPP”) issued last year by the U.S. Environmental Protection Agency. The resource plan outlined in this document should put us in a strong position to comply with the new rules, which would require a 32‐percent reduction in carbon dioxide (CO2) emissions from Arizona power plants. UNS Electric does not own or operate coal‐fired generators, so the CPP would not affect us as significantly as other electric providers. But the status of the CPP is in question after the U.S. Supreme Court issued a stay suspending enforcement of the rules pending further ligitation. UNS Electric’s continued evaluation of new resources is an important part of our efforts to provide safe, reliable and cost‐effective service to customers. We intend to provide more robust resource planning information for UNS Electric’s final IRP in 2017. David G. Hutchens President and CEO


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Acknowledgements

UNSElectricIRPTeam

VictorAguirre,Manager,ResourcePlanningJeffYockey,Manager,EnvironmentalandLong‐TermPlanningKevinBattaglia,LeadResourcePlannerLucThiltges,LeadResourcePlannerGregStrang,SeniorForecastingAnalystStephanieBrowne‐Schlack,SeniorForecastingAnalystDeniseRicherson‐Smith,Director,CustomerServices&Programs,CustomerCareCenterRonBelval,Manager,TransmissionPlanningJimTaylor,SeniorDirector,T&DOperationsJeffKrauss,Manager,RenewableEnergyJoeBarrios,Supervisor,MediaRelations&RegulatoryCommunicationsErikBakken,SeniorDirector,TransmissionandCorporateEnvironmentalServicesMikeSheehan,SeniorDirector,FuelsandResourcePlanning

IRPConsultantsandForecastingServices

PaceGlobalhttp://www.paceglobal.com/GaryW.Vicinus,ExecutiveVicePresident,‐ConsultingServicesMelissaHaugh‐ConsultingServicesAnantKumar‐ConsultingServicesWoodMackenzie‐ConsultingServiceshttp://public.woodmac.com/public/homeEPIS‐AuroraXMPSoftwareConsultingServiceshttp://epis.com/

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TABLEOFCONTENTS

Foreword.................................................................................................................................................................................................................3Acknowledgements............................................................................................................................................................................................4

CHAPTER1‐EXECUTIVESUMMARYIntroduction...........................................................................................................................................................................................................92016PreliminaryIntegratedResourcePlanRequirements............................................................................................................9UpdatesonUNSE’sResourcePlanningStrategySincethe2014IRP.........................................................................................10GilaRiverUnit3.................................................................................................................................................................................................10UNSE’sLong‐TermResourceDiversificationStrategy.....................................................................................................................10TransmissionResources.................................................................................................................................................................................11Achieving15%Renewablesby2025........................................................................................................................................................11SupportingFutureRenewableIntegration............................................................................................................................................12CompliancewiththeCleanPowerPlan...................................................................................................................................................13PlanningfortheFutureofEnergyEfficiency........................................................................................................................................18PowerGenerationandWaterImpactsofResourceDiversification...........................................................................................19

CHAPTER2‐LOADFORECASTGeographicalLocationandCustomerBase............................................................................................................................................21RetailSalesbyRateClass...............................................................................................................................................................................22LoadForecastProcess.....................................................................................................................................................................................23Methodology........................................................................................................................................................................................................23RetailEnergyForecastbyRateClass........................................................................................................................................................24PeakDemandForecast....................................................................................................................................................................................25

CHAPTER3‐LOADSANDRESOURCESFutureLoadObligations.................................................................................................................................................................................28ResourceCapacity.............................................................................................................................................................................................29ExpectedAnnualEnergy................................................................................................................................................................................30CommunityScaleRenewables.....................................................................................................................................................................31ExistingRenewableResources....................................................................................................................................................................31DistributedGeneration...................................................................................................................................................................................32OverviewofUNSRenewablePortfolio.....................................................................................................................................................33EnergyEfficiency...............................................................................................................................................................................................34ProgramPortfolioOverview.........................................................................................................................................................................35Transmission.......................................................................................................................................................................................................36


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CHAPTER4‐EMERGINGTECHNOLOGIESSmallModularNuclearReactors................................................................................................................................................................39ReciprocatingInternalCombustionEngines.........................................................................................................................................41TheFutureoftheDistributionGrid...........................................................................................................................................................43EnergyStorage....................................................................................................................................................................................................45Lazards’sStorageAnalysis:KeyFindings...............................................................................................................................................48CostCompetitiveStorageTechnologies..................................................................................................................................................48FutureEnergyStorageCostDecreases....................................................................................................................................................49

CHAPTER5‐OTHERRESOURCEPLANNINGTOPICSEnergyImbalanceMarket..............................................................................................................................................................................51IntegrationofRenewables.............................................................................................................................................................................53UtilityOwnershipinNaturalGasReserves............................................................................................................................................56

CHAPTER6‐FUTURERESOURCEASSUMPTIONSFutureResourceOptionsandMarketAssumptions..........................................................................................................................57GenerationResources–MatrixofApplications...................................................................................................................................58ComparisonofResources..............................................................................................................................................................................59LevelizedCostComparisons.........................................................................................................................................................................60RenewableTechnologies–CostDetails..................................................................................................................................................61ConventionalTechnologies–CostDetails..............................................................................................................................................62Lazard’sLevelizedCostofEnergyAnalysis:KeyFindings..............................................................................................................63CostCompetivenessofAlternativeEnergyTechnologies...............................................................................................................63TheNeedforDiverseGenerationPortfolios.........................................................................................................................................64TheImportanceofRationalandTransparentEnergyPolicies.....................................................................................................64RenewableElectricityProductionTaxCredit(“PTC”)......................................................................................................................65EnergyInvestmentTaxCredit(“ITC”).....................................................................................................................................................66ImpactsofDecliningTaxCreditsandTechnologyInstalledCosts..............................................................................................68ImpactsofDecliningPTCandTechnologyInstalledCosts.............................................................................................................69

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CHAPTER7‐MARKETASSSUMPTIONS&SCENARIOSMarketAssumptions........................................................................................................................................................................................70PermianNaturalGas........................................................................................................................................................................................70PaloVerdeMarketPrices...............................................................................................................................................................................702016IRPScenarios...........................................................................................................................................................................................71EnergyStorageCase.........................................................................................................................................................................................71SmallNuclearReactorsCase........................................................................................................................................................................71LowLoadGrowthorExpandedEnergyEfficiencyCase..................................................................................................................71ExpandedRenewablesCase..........................................................................................................................................................................72AdditionalProposedScenarios...................................................................................................................................................................72MarketBasedReferenceCase......................................................................................................................................................................72HighLoadGrowthCase...................................................................................................................................................................................72

CHAPTER8‐RISKANALYSISANDSENSITIVITIESFuel,MarketandDemandRiskAnalysis.................................................................................................................................................73PermianNaturalGas........................................................................................................................................................................................74PaloVerde(7x24)MarketPrices................................................................................................................................................................75LoadGrowthSensitivity.................................................................................................................................................................................76

CHAPTER9‐ACTIONPLAN2016–2017ActionPlan................................................................................................................................................................................77


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Executive Summary

Introduction

UNSElectric’s(UNSE’sortheCompany’s)2016preliminaryIntegratedResourcePlan(“IRP”)introducesanddiscussestheissuesthatUNSEplanstoanalyzeindetailforthefinal2017IntegratedResourcePlan.Thepurposeofthisreportistoprovideregulators,customersandotherinterestedstakeholdersanopportunitytounderstandthecurrentplanningenvironmentandprovidefeedbackontheCompany’sfutureresourceplanspriortothe2017FinalIRPsubmittalonApril1,2017.InadditiontoprovidingasnapshotofUNSE’scurrentloadsandresources,thisreportprovidesanoverviewofcurrentresourcecostassumptions,forwardmarketconditionsaswellasadiscussiononsomenewemergingtechnologies.ThisreportalsohighlightsanumberofchangesintheCompany’sresourceplanssincethe2014IRPanddiscussessomeofthenewinfrastructurerequirementsandpolicydecisionsthatmustbeaddressedoverthenextfewyears.

2016PreliminaryIntegratedResourcePlanRequirements

InaccordancewithDecisionNo.75269(DocketNo.E‐00000V‐15‐0094),theCommissionorderedtheArizonaloadservingentitiestofileapreliminaryIRPonMarch1,2016withthefinalIRPreportdueApril1,2017.ThisorderstipulatedthatthepreliminaryIRPincludesthefollowingtopics;

LoadForecast

LoadandResourceTable(includingtechnologydiscussion)

SourcesofAssumptionsandTechnologiesEvaluated

StatusupdateonCompany’splantoparticipateintheEnergyImbalanceMarket(“EIM”)

ScenariosRequestedin2014IRPDecision(No.75068)

o EnergyStorage

o SmallNuclearReactors

o ExpandedRenewables(includingdistributedresources):biogas,solar,wind,geothermal,etc.

o ExpandedEnergyEfficiency/demandresponse/integratedemandsidemanagement(whichshallincludetheeffectofmicro‐gridsandcombinedheatandpower)

ProposedSensitivities

FutureActionPlan

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Updates on UNSE’s Resource Planning Strategy since the 2014 IRP

GilaRiverUnit3

InDecember2014,TucsonElectricPower(“TEP”)andUNSEacquiredUnit3attheGilaRiverGeneratingStationfor$219million.GilaRiverUnit3isa550megawattnaturalgascombined‐cyclepowerplantlocatedinGilaBend,Arizona.Today,lownaturalgaspricesmakeGilaRiverUnit3oneoflowestcostgenerationassetsforbothTEPandUNSE.GilaRiver’sfastrampingcapabilities,alongwithitsreal‐timeintegrationintoTEP’sbalancingauthority,providebothTEPandUNSEwithanidealresourcetosupporttheintegrationoffuturerenewables.

UNSE’sLong‐TermResourceDiversificationStrategy

TheadditionofGilaRiver3boostedUNSE’sgeneratingcapabilitiestocoverasignificantamountofitsbaseloadandintermediatecapacityrequirements.UNSEiswell‐positionedtoshapeitsresourceportfoliomixmoreaptlytothefinaloutcomeoftheStateImplementationPlans(“SIP”)andtheCleanPowerPlan(“CPP”).UNSEiscommittedtofollowthroughonitslong‐termportfoliodiversificationstrategytotakeadvantageofothernear‐termopportunitiestocomplywiththeCPP,theArizonaEnergyEfficiencyStandardandtheArizonaRenewableEnergyStandard.UNSEwillstudythepotentialofstoragetechnologiesandnaturalgasgeneratingresourcesthatwillbeutilizedtomeetgrowingdemandandtohelpmitigatethechallengesthatarepresentedwiththeintermittencyandvariabilityofrenewableresources.UNSEplanstofilethesedetailsonitsdiversificationstrategyinthe2017FinalIRP.

Figure1‐UNSE’sLongTermResourceDiversificationStrategy

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Transmission Resources

UNSE’stransmissionresourcesincludeapproximately334milesoftransmissionlinesownedbyUNSE,long‐termtransmissionrights(Point‐to‐PointandNetworkservice)purchasedfromWesternAreaPowerAdministration(“WAPA”),TEP,andPoint‐to‐Pointtransmissionpurchasedfromothertransmissionprovidersonanadhocbasis.GivenUNSE’sdependenceonthird‐partytransmissionprovidersUNSEworkscloselywithWAPA’stransmissionplanninggrouptoensureadequatelong‐termtransmissioncapacityisavailabletoservetheMohaveserviceterritories.WAPArecentlyconductedanupdatedSystemImpactStudy(“SIS”)forUNSEtoaddresscurrentandfutureloadgrowthforecasts.BasedonWAPA’savailabletransmissioncapacity,theloadservingcapabilityforMohaveCountyissufficientlyabovetheloadprojectionswithinthestudyperiodofthe2017FinalIRP.InSantaCruzCounty,UNSEcompletedtheVailtoValencia115kVto138kVtransmissionupgradeinDecember2014.

Achieving 15% Renewables by 2025

UNSEplanstocontinuedevelopmentoflowcostrenewableprojectsthatprovidelong‐termvaluetoUNSE’sretailcustomersinMohaveandSantaCruzcounties.UNSEcontinuestobecommittedtomeetatargetof15%ofretailenergyneedswithrenewableenergyresourcesby2025.Figure2below,illustratesUNSE’scommitmenttoexpanditsrenewableresourceportfolio.By2023,UNSEexpectstoexceedtheRenewableEnergyStandard.

Figure2–UNSEPortfolioEnergyMix


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SupportingFutureRenewableIntegration

AspartofthisIRPplanningcycle,UNSEiscurrentlyevaluatinganumberoftechnologiestosupportUNSE’srampupinrenewableresources.Reciprocatingenginesandbatterystoragearetwotechnologiesbeingconsideredtosupportrenewableintegration.

NaturalGasReciprocatingEngines

Reciprocatingengines,whilenotnewtechnology,areemergingaspotentialalternativesinlarge‐scaleelectricgeneration.Advancesinengineefficiencyandtheneedforfast‐responsegenerationmakereciprocatingenginesaviableoptiontostabilizevariableandintermittentelectricdemandandrenewableresources.AspartoftheCompany’scommitmenttotargethigherlevelsofrenewables,UNSEisevaluatingthecostandoperationalcharacteristicsofreciprocatingenginesasanalternativetobothframeandaeroderivativenaturalgascombustionturbines.Aspartofthe2017FinalIRP,UNSEplanstoprovideanin‐depthanalysisoncosts,usesandpotentialbenefitsofthistechnologytosupportrenewableintegration.

BatteryStorage

Inthespringof2015,TEPissuedarequestforproposals(“RFP”)forthedesignandconstructionofutility‐scaleenergystoragesystems.CurrentlyTEPisworkingwithtwovendorstofinalizetheplansfortwo10MWlithiumionbatterystorageprojects.While20MWrepresentsonly1%ofTEP’speakretailload,theseprojectsarelargeenoughtohaveameasurableimpactonsupportinggridoperations.Assumingtheperformancefromthesefirsttwoinstallationsisfavorable,TEPwouldthenconsiderfutureenergystorageprojectsasaviableoptionforregulationandfrequencyresponsetosupporttheexpandeduseofrenewableresources.BothoftheseprojectsawaitCommissionapprovalthroughTEP’s2016RenewableEnergyStandardandTariffImplementationPlan(A.A.C.R14‐2‐1813)(DocketE‐01933A‐15‐0239).TEPanticipatesthatthependingstorageprojectswillbeinserviceduringtheearlymonthsof2017.Chapter6providesmoredetailontheseTEPspecificprojectsalongwithanin‐depthanalysisbyLazard1onstoragetechnologiesthathighlightstoragecosts,usesandtechnologycombinations.UNSEwillmonitortheTEPbatterystorageprojectandwillanalyzeitsapplicabilitywithintheUNSEserviceterritory.

Since2011UNSEhashelpedcustomerssavemorethan155,000megawatt‐hours,enoughenergytopowernearly14,500homesforayear.ThesesavingshelpUNSEworktowardthegoalsinArizona’sEEStandard,whichcallsonutilitiestoachievecumulativeenergysavingsof22percentby2020.

1 Lazard is a preeminent financial advisory and asset management firm. More information can be found at https://www.lazard.com

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CompliancewiththeCleanPowerPlan

OnOctober23,2015,theEPApublishedafinalruleregulating,forthefirsttime,“CO2”emissionsfromexistingpowerplants.Ingeneral,thisfinalrule,referredtoasthe“CleanPowerPlan”(“CPP”),aimstoreduceCO2emissionsfromU.S.powerplantsby32%from2005levelsby2030.Morespecifically,theruleestablishesemissionguidelinesbasedonEPA’sdeterminationofthe“bestsystemofemissionreductions”,whichStatesandtribes(heretoreferredtoas“States”)mustusetosetstandardsapplicabletotheaffectedplantsintheirjurisdictions.

Arizonaisoneof27stateschallengingtheEPA’srulemakingauthorityandArizonahasfiledsuitagainsttheEPA.OnFebruary9,2016,theUnitedStatesSupremeCourtissuedastayoftheCPP2meaningthattherulehasnolegaleffectpendingtheresolutionofthestateandindustrychallengetotherule.ThatchallengeiscurrentlybeforetheU.S.CourtofAppealsfortheD.C.Circuit,whichwillhearoralargumentsonJune2,2016.Inalllikelihood,thismeansaD.C.Circuitdecisionwillnotbeissueduntilearlyfall,attheearliest.Givenallthat’satstake,eitherenbancreviewontheD.C.Circuitorapetitionforcertiorarilikelywillfollow.

TheCPPestablishesemissiongoalsfortwosubcategoriesofpowerplantsintheformofanemissionrate(lbs/MWh)thatdeclinesovertheperiodfrom2022to2030.Thosesubcategoriesare:

Fossilfiredsteamelectricgeneratingunits(“SteamEGUs”)‐includescoalplantsandoilandnaturalgas‐firedsteamboilers

Naturalgas‐firedcombined‐cycleplants(“NGCC”)Thenusingtheserates(“SubcategoryRates”)andtheproportionalgenerationfromsteamEGUsandNGCCplantsineachstate,theCPPderivesstatespecificgoals(“StateRates”).TheCPPalsoconvertstheseemissionrategoalstototalmass(i.e.shorttons)goalsforeachstate.EachstateisrequiredtodevelopaStatePlanthatwillregulatetheaffectedplantsintheirjurisdiction.UNSEwillbesubjecttotheArizonaStatePlan.Table1belowshowstheapplicablerategoals.

Table1–CPPRateGoals

CO2Rate(lbs/MWh) 2022‐2024 2025‐2027 2028‐2029 2030+

SubcategorizedRate‐SteamEGUs 1,671 1,500 1,308 1,305SubcategorizedRate‐NGCC 877 817 784 771

StateRate‐Arizona 1,263 1,149 1,074 1,031

TherearethreeprimaryformsoftheStatePlanavailabletostates(withsub‐options):

Rate Plantsarerequiredtomeetanemissionratestandard(lbs/MWh)equaltotheplant’semissionsdividedbythesumofitsgenerationandthegenerationfromqualifyingrenewableenergyprojectsand/orverifiedenergyefficiencysavings.Arateplancouldbeadministeredthroughtheuseofemissionratecredits(“ERCs”),wheresourceswithemissionsabovethestandardgeneratenegativeERCswhentheyoperate,andsources

2http://www.supremecourt.gov/orders/courtorders/020916zr3_hf5m.pdf


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withemissionsbelowthestandard(ornoemissions)generatepositiveERCs.Attheendofacomplianceperiod,eachaffectedplantmusthaveatleasta“zero”balanceofERCs.

Undertherateapproach,stateshavetheoptionofmeasuringcomplianceagainsttheStateRateortheSubcategoryRates.

Mass Plantsareallocated(orotherwiseacquire)allowances,thetotalofwhichequalsthestate’smassgoal,andeachplantmustsurrenderanallowanceforeachtonofCO2emittedduringacomplianceperiod.Ownersofplantsthatdonothavesufficientallowancescanreduceemissionsbycurtailingproduction,re‐dispatchingtoaloweremissionresource,orretiringtheplantandre‐distributingallowancestotheirremainingplants.

StateMeasures Insteadofregulatingpowerplantsdirectly,astatecouldimplementpoliciesthatwillhavetheeffectofreducingemissionsintheirstatesuchasbuildingcodes,renewableenergymandatesorenergyefficiencystandards.Complianceismeasuredbasedonemissionsfromtheaffectedplants.

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ArizonaTheStateofArizonahasbeenproactiveinplanningforCPPcompliance.FollowingsubmittalofcommentstoEPA’sproposedrule,andpriortotheEPAissuingthefinalrule,theArizonaDepartmentofEnvironmentalQuality(“ADEQ”)continuedworkingwithstakeholders,andthroughaseriesofmeetingsaccumulatedalistofPotentialComplianceStrategies3.Afterthefinalrulewasissued,ADEQcontinuedtomeetwithstakeholdersandoneofitsinitialstepswastodevelop10PrincipalsofanArizonaResponsetotheCleanPowerPlan4.DuringthisphaseofCPPplanningADEQformedaTechnicalWorkingGrouptoassistinevaluatingtechnicalaspectsoftheplan.

TheStateofArizonahaspreviouslystateditiscommittedtodevelopingaStatePlan.DuetothecomplexitiesinherentindevelopingaStatePlan,theStateofArizonaalsoindicatedthatitwouldfileaninterimplanpriortoSeptember6,2016,andrequestatwo‐yearextensionforfilingthefinalStatePlan.However,thistimingwillbedelayedinlightoftheU.S.SupremeCourtstayoftherule.

Inpreparingfortheinitialplansubmittal,ADEQorganizedtheoptionsfortheformofaStatePlanintosubsetsofRateorMass,andhasexpressedaninterestinfocusingonthemostlikelyoptions.

Chart1–ADEQRegulatoryFrameworkOptions5

3http://www.azdeq.gov/environ/air/phasetwo.html4http://www.azdeq.gov/environ/air/phasethree.html5Ibid,ADEQ“EPA’sFinalCleanPowerPlan:Overview,SteveBurr,AQD,SIPSection,September1,2015


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PACEGlobalArizonaCPPAnalysis

TohelpevaluatetherelativebenefitsofRateversusMassforArizona,theArizonautilitieshiredPACEGlobal(“PACE”)toconductamodelingassessmentoftherelativecompliancepositioncomparedtotheStateRateandMassgoalsbasedonabasecaseoutlook.Theresults6ofthatassessmentindicatethatArizonawouldlikelyfallshortoftheallowancesneededtocoveremissionsusingamassapproach.However,Arizonawasabletomeettherategoalsforthevastmajorityofthecomplianceperiodstudied.Aratebasedplan,ingeneral,betteraccommodatestheneedtomeetfutureloadgrowthwithexistingplants,andthesubcategoryrateapproachisgenerallyconsideredbetterforresourceportfolioswithahighpercentageofcoal‐firedgeneration.

Figure3–PACEGlobalArizonaCPPAnalysis

WhilethefinallegalstatusoftheCPPhasyettobedetermined,itisworthnotingthatUNSE’songoingresourcediversificationplanisconsistentwiththegoalsoftheCPPwithagenerationportfoliosourceprimarilyfromnaturalgas,renewableenergy,andenergyefficiency.

6Moreinformationcanbefoundathttp://www.azdeq.gov/environ/air/phasethree.html#technical

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Energy Efficiency in the Clean Power Plan

Inthefinalrule,EPAidentifiesavarietyofenergyefficiencymeasures,programs,andpoliciesthatcancounttowardcomplianceoftheCPP.Theseincludeutilityandnonutilityenergyefficiencyprograms,buildingenergycodes,combinedheatandpower,energysavingsperformancecontracting,stateapplianceandequipmentstandards,behavioralandindustrialprograms,andenergyefficiencyinwaterandwastewaterfacilities,amongothers.

EnergyEfficiencyunderMassBasedComplianceProgramsUnderamassbasedapproach,energyefficiencyinherentlycountstowardcomplianceandstatescanuseanunlimitedamounttohelpachievetheirstategoals.Energyefficiencyinherentlycountstowardcomplianceunderamassbasedapproachsinceitdisplacesactualfossilgenerationandtheassociatedemissionsunderamasscap,freeingupallowancesforsourcesusetowardstheirremainingeffectedEGUsortotrade.Thereisnolimitontheuseofenergyefficiencyprogramsandprojects,andenergyefficiencyactivitiesdonotneedtobeapprovedaspartofastateplan,therefore,Evaluation,MeasurementandVerification(EM&V)isgenerallynotrequiredformassbasedapproachesundertheCleanPowerPlan.

EnergyEfficiencyunderRateBasedComplianceProgramsUnderratebasedplans,quantifiedandverifiedmegawatthours(MWh)fromeligibleenergyefficiencymeasuresinaratebasedstatecanbeusedtogenerateERCsandadjusttheCO2emissionrateofanaffectedEGU,regardlessofwheretheemissionreductionsoccur.EnergyefficiencyunderateratebasedplanmustundergoEM&V.ThefinalCPPgivesstateswithratebasedplanstheabilitytodesigntheirprogramssothattheyarereadyforinterstatetradingofERCs,includingthoseissuedforenergyefficiency,withouttheneedforformalarrangementsbetweenindividualstates.ThesestateplansrecognizeERCsissuedbyanystatethatalsousesaspecifiedEPAapprovedorEPAadministeredtrackingsystem.

EnergyEfficiencyandtheCleanEnergyIncentiveProgram(“CEIP”)EPAhasalsoproposedanearlycreditoptionforstatescalledtheCEIP.TheCEIPawardsearlycreditforlow‐incomeenergyefficiencyprogramsandcertainrenewableenergyprojectsimplementedin2020and2021.Theprogramoffersatwo‐to‐onematchforstateenergyefficiencysavingsinordertoincenttheseeffortspriortothestartofthecomplianceperiod.Thefinalrulealsorequiresstatestoincorporatetheneedsoflow‐incomeandunderservedcommunitieswithintheircomplianceplans,andfullyengagethesecommunitiesalongwithotherstakeholdersduringtheplanningprocess.

TransmissionandDistributionEfficiencyMeasuresEPA’sfinalrulealsoallowstransmissionanddistribution(“T&D”)measuresthatimprovetheefficiencyoftheT&Dsystemtocounttowardsemissionreductionsandcomplianceoptions.ThisincludesT&Dmeasuresthatreducelinelosses7ofelectricityduringdeliveryfromageneratortoanend‐userandT&Dmeasuresthatreduceelectricityuseattheend‐user,suchasconservationvoltagereduction(CVR)8.

7 T&Dsystemlosses(or‘‘linelosses’’)aretypicallydefinedasthedifferencebetweenelectricitygenerationtothegridandelectricitysales.TheselossesarethefractionofelectricitylosttoresistancealongtheT&Dlines,whichvariesdependingonthespecificconductors,thecurrent,andthelengthofthelines.TheEnergyInformationAdministration(EIA)estimatesthatnationalelectricityT&Dlossesaverageabout6percentoftheelectricitythatistransmittedanddistributedintheU.S.eachyear. 8 Volt/VAroptimization(VVO)referstocoordinatedeffortsbyutilitiestomanageandimprovethedeliveryofpowerinordertoincreasetheefficiencyofelectricitydistribution.VVOisaccomplishedprimarilythroughtheimplementationofsmartgridtechnologiesthatimprovethereal‐timeresponsetothedemandforpower.TechnologiesforVVOincludeloadtapchangersandvoltageregulators,whichcanhelpmanagevoltagelevels,aswellascapacitorbanksthatachievereductionsintransmissionlineloss.


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PlanningfortheFutureofEnergyEfficiencyUNSE'senergyefficiencyprogramswillcontinuetocomplywiththeArizonaEnergyEfficiencyStandardthattargetsacumulativeenergysavingsof22%by2020.Infutureplanningcycles,UNSEplanstoexpanditsenergyefficiencyresourceportfoliotobecompliantundertheprovisionsoftheCPP.UNSEplanstopartnerwithstatesandlocalorganizationstoleveragetheEPA’sCEIPtoidentifyopportunitiestoimproveenergyefficiencyforlow‐andmoderateincomecustomerswhilesupportingprivatesectorandfoundationinitiatives.Inthe2017FinalIRP,UNSEplanstohighlightthecompany'sstrategyonhowitplanstomakethistransition.ThistransitionfromthecurrentArizonaEnergyEfficiencystandardtocomplianceundertheCPPwillplayakeyroleinachievinglowcostenergyalternativesforUNSE'scustomers.

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PowerGenerationandWaterImpactsofResourceDiversification

TheCPPachievesCO2emissionreductionsprimarilybyreplacinggenerationfromhigheremittingcoal‐firedresourceswithacorrespondingamountofgenerationfromloweremittingNGCCplantsandzero‐emissionrenewableresources9.Fortunately,wateruseamongthesepowergenerationtechnologiesisanalogoustotheirrespectiveCO2emissions.SeetheChart2,belowforaveragewaterconsumptionratesforvariouselectricitygenerationtechnologies.Basedonthesewaterconsumptionrates,implementationoftheCPPshouldresultinlowerwaterconsumptionforpowergenerationoverall.

Chart2–LifeCycleWaterUseforPowerGeneration10

However,unlikeCO2emissions,waterconsumptionhasamuchmorelocalizedenvironmentalimpact.Theavailabilityofwaterthatiswithdrawnfromsurfacewatersishighlydependentonprecipitationandsnowpack,aswellasotheruses.Similarly,theavailabilityofwaterthatiswithdrawnfromgroundwateraquifers,asinthecaseofGilaRiver,isdependentontherechargetoandotherwithdrawalsfromtheaquifer,butisalsoafunctionofthehydrogeologicalcharacteristicsoftheaquiferitself.

9EnergyEfficiencyisalsoanimportanttoolforachievingtheCO2emissionreductionscalledforundertheCPP.10AdaptedfromMeldrumet.al.“Lifecyclewateruseforelectricitygeneration:areviewandharmonizationofliteratureestimates”,publishedMarch3,2013,http://iopscience.iop.org/article/10.1088/1748‐9326/8/1/015031


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Totheextentthatthe“replacement”powergenerationislocatedatorneartothecoal‐firedgenerationitisreplacing,wateravailabilitywillbecomelessofanissueunderCPPimplementation.However,ifthe“replacement”powergenerationislocatedelsewhere,thewateravailabilityinthatareamayneedtobeevaluated.

Thereisover6,000MWofexistingNGCCcapacitylocatedwestofPhoenix,Arizona(inproximitytothePaloVerdeNuclearGeneratingStation)thatislikelytoseeasignificantincreaseingenerationasaresultofCPPimplementation.Whilethesegeneratingfacilitiesareexpectedtohavetherequisitelegalrightstowithdrawtheamountofwaternecessarytomeetexpectedhigherdemandforelectricity,theriskassociatedwiththecumulativeimpactofhighergroundwaterwithdrawalonhydrogeologicalavailabilityshouldbeassessed.UNSEwillincludeaqualitativeassessmentaspartofthe2017FinalIRP.

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LOAD FORECAST

Introduction

IntheIRPprocess,itiscrucialtoestimatetheloadobligationsthatexistingandfutureresourceswillberequiredtomeetforbothshortandlongtermplanninghorizons.Asafirststepinthedevelopmenttheresourceplan,alongtermloadforecastwasproduced.ThischapterwillprovideanoverviewoftheanticipatedlongtermloadobligationsatUNSE,adiscussionofthemethodologyanddatasourcesusedintheforecastingprocess,andasummaryofthetoolsusedtodealwiththeinherentuncertaintycurrentlysurroundinganumberofkeyforecastinputs.

GeographicalLocationandCustomerBase

UNSEcurrentlyprovideselectricitytoapproximately94,000customersintwogeographicallydistinctareas.InnorthwestArizona,UNSEprovidesservicetothemajorityofMohaveCounty.Thissegmentoftheserviceterritoryincludesapproximately75,000customerslocatedprimarilyintheKingmanandLakeHavasuCityareas.InadditiontoMohaveCounty,UNSEalsoprovidesservicetothemajorityofSantaCruzCountyinsouthernArizona.Thissouthernserviceterritoryincludesapproximately19,000customerslocatedprimarilyintheNogalesarea.Thetworegionsareverydifferentbothintermsofpopulationandgeography.Forinstance,MohaveCountyisestimatedtohaveacurrentpopulationofapproximately204,000andhasexperiencedanestimated1.15%annualgrowthoverthelastdecade,whileSantaCruzCountyisestimatedtohaveacurrentpopulationofapproximately47,000,andhasgrownatanestimated1.14%annualrateoverthesameperiod.Inadditiontothevaryingpopulationdynamics,thegeographyandweatherofthetwoserviceareasarealsodistinctlydifferent.Forexample,LakeHavasuCitysitsatanelevationofapproximately735feet,whileNogalesislocatedinmountainousterrainandsitsat3,823feet.Thedifferencesinpopulationdemographics,topography,andweatherresultindistinctpatternsofdemand,consumption,andcustomergrowthwithineachregionthatmustbetakenintoaccountduringtheplanningprocess.Whiletheeconomicclimatehasslowedpopulationgrowthsignificantlyinrecentyears,UNSE’sserviceareasarestillexpectedtoexperiencesignificantgrowthaftertherecessionaryenvironmentinArizonasubsides.Thisanticipatedgrowthwilllikelyrequiretheacquisitionofadditionalresourcesinordertoprovideservicetoanincreasingcustomerbase.

Chapter2


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Chart3summarizesthehistoricalandprojectedUNSEresidentialcustomergrowthfrom2005‐2030.

Chart3‐UNSEResidentialCustomerGrowth2005‐2030

RetailSalesbyRateClass

In2015,UNSEexperiencedretailpeakdemandofapproximately400MWwhilegeneratingapproximately1,600GWhofsales.Approximately89%of2015retailsalesweregeneratedbytheresidentialandcommercialrateclasses,andapproximately11%generatedbytheindustrialandminingrateclasses.Chart4detailsestimated2016UNSEretailsalesbyrateclass.

Chart4–Estimated2016RetailSales%byRateClass

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

72,000

77,000

82,000

87,000

92,000

97,000

102,000

107,000

2005 2008 2011 2014 2017 2020 2023 2026 2029

Growth, %

Residen

tial Customers

Average Annual Residential Customers % Growth

Residential51%

Commercial38%

Industrial10%

Mining0.56%

Other0.12%

UNSElectric

Page‐23

Load Forecast Process

Methodology

TheloadforecastpresentedinthisPIRPwasderivedusinga“bottomup”approach.Amonthlyenergyforecastwaspreparedforeachofthemajorrateclasses(residential,commercial,industrial,andmining).WidelyvaryingcustomerusagepatternsandweatherinMohaveandSantaCruzcounties,aswellassignificantdifferencesbetweencustomerusageandweatherintheKingmanareaandtheLakeHavasuCityareawithintheMohaveserviceterritoryrequirethattheforecastsbefurthersegmentedintothreedistinctgeographicalprojections.However,theindividualmethodologiesfallintotwobroadcategories:

1) Fortheresidentialandcommercialclasses,forecastsareproducedusingstatisticalmodels.Inputsmayincludefactorssuchashistoricalusage,weather(e.g.averagetemperatureanddewpoint),demographicforecasts(e.g.populationgrowth),andeconomicconditions(e.g.grosscountyproductanddisposableincome).

2) Fortheindustrialandminingclasses,forecastsareproducedforeachindividualcustomeronacasebycasebasis.Inputsincludehistoricalusagepatterns,informationfromthecustomersthemselves(e.g.timingandscopeofexpandedoperations),andinformationfrominternalcompanyresourcesworkingcloselywiththeminingandindustrialcustomers.

Aftertheindividualmonthlyforecastsareproduced,theyareaggregated(alongwithanyremainingmiscellaneousconsumptionfallingoutsidethemajorcategories)toproduceamonthlyenergyforecastforthecompany.

Afterthemonthlyenergyforecastforthecompanywasproduced,theanticipatedmonthlyenergyconsumptionwasusedasaninputforanotherstatisticalmodelusedtoestimatesthepeakdemandforeachmonthbasedonthehistoricalrelationshipbetweenconsumptionanddemandinthemonthinquestion.Annualpeakdemandwasthencalculatedbysimplytakingthemaximummonthlypeakdemandforeachyearintheforecastperiod.


Page‐24

RetailEnergyForecast

AsillustratedinChart5,UNSE’sretailsales,inaggregate,areexpectedtoberelativelyflatoverthenextfewyears.Totalenergysalesareexpectedtosteadilygrowthroughouttheforecasthorizon.

Chart5‐RetailEnergySales

RetailEnergyForecastbyRateClass

AsillustratedinChart6theloadforecastassumessignificant,steadyenergysalesgrowthatUNSEthroughouttheplanningperiod.However,thegrowthratesvarysignificantlybyrateclass.TheenergysalestrendsforeachmajorrateclassaredetailedinChart6.ThelossofminingsalesduetoeconomicweaknesscanbeseeninChart6.

Chart6‐RetailEnergySalesbyRateClass

0

500

1,000

1,500

2,000

2,500

2005 2008 2011 2014 2017 2020 2023 2026 2029

UNSE Retail GWh

0

200

400

600

800

1,000

1,200

2005 2008 2011 2014 2017 2020 2023 2026 2029

UNSE Retail (GWh)

Residential Commercial Industrial Mining

UNSElectric

Page‐25

PeakDemandForecast

AsillustratedinChart7,UNSE’speakdemandisexpectedtoincreasethroughouttheforecastperiod.

Notethatallreferencestopeakdemandare“coincidental”peaksystemdemand(i.e.thehighestdemandseensimultaneouslyintheMohaveandSantaCruzserviceareas).Duetogeography,thetwoserviceareastypicallyexperienceindividualserviceareapeaksatdifferenttimeswiththeSantaCruzpeaktypicallyoccurringinJuneandtheMohavepeaktypicallyoccurringinJulyorAugust.BecauseMohaveCountygeneratesmuchhigherdemand(andenergysales),theUNSEcoincidentalsystempeakalsotypicallyoccursinJulyorAugust.

Chart7‐ReferenceCasePeakDemand

DataSourcesUsedinForecastingProcess

Asoutlinedabove,thereferencecaseforecastrequiresabroadrangeofinputs(demographic,economic,weather,etc.)Forinternalforecastingprocesses,UNSEutilizesanumberofsourcesforthesedata:

IHSGlobalInsight

TheUniversityofArizonaForecastingProject

ArizonaDepartmentofCommerce

U.S.CensusBureau

NOAA

WeatherUnderground

250

300

350

400

450

500

550

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

UNSE Retail Peak Dem

and (MW)


Page‐26

UNSElectric

Page‐27

LoadandResources

TheloadsandresourceschartshownbelowillustrateshowUNSE’sfirmloadobligationsaremetcurrently.ThefirmloadobligationsrepresentUNSE’sretaildemandlessenergyefficiencyanddistributedgenerationplusa15%planningreservemargin.The2017FinalIRPwillevaluatetheremainingpeakdemandrequirements(shownbelow)todetermineadiverseportfoliomix.

Chart8–UNSELoadsandResources

Chapter3

2016Prelim

inaryIntegratedResourcePlan

Page‐28

Future Load

Obligations

Thetablesonthenexttw

opagesprovideadatasum

maryonUNSE’sloadsandresources.Table2detailsUNSE’sprojectedfirmloadobligationswhich

includeretaildemand,lessenergyefficiencyanddistributedgenerationplusplanningreserves.

Table2‐Firm

LoadObligations,SystemPeakDem

and(MW)

Dem

and, M

W

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Residen

tial

226

230

234

240

245

250

257

262

267

272

279

286

292

299

305

Commercial

166

168

170

172

174

176

179

180

181

183

184

186

186

186

187

Industrial

44

45

45

46

47

47

47

47

47

47

47

47

46

45

46

Mining

2

00

00

00

0

00

00

00

0

Other

1

11

11

11

1

11

11

11

1

Gross Retail Peak Dem

and

440

443

451

458

466

474

482

489

496

503

511

518

524

531

538

Distributed Gen

eration

‐7

‐8

‐9

‐10

‐11

‐11

‐12

‐12

‐13

‐13

‐13

‐14

‐14

‐14

‐14

Energy Efficiency

‐23

‐25

‐30

‐35

‐40

‐45

‐49

‐52

‐55

‐58

‐61

‐63

‐63

‐63

‐64

Net Retail Peak Dem

and

410

410

411

413

416

418

422

425

428

432

437

442

448

454

460

Firm

Wholesale Dem

and

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

System

Losses

32

32

32

32

33

33

33

33

34

34

34

35

35

36

36

Total Firm Load

Obligations

442

442

443

446

448

451

455

458

462

466

471

477

483

490

496

Reserve Margin

74

‐25

‐126

‐128

‐120

‐117

‐117

‐117

‐117

‐111

‐112

‐114

‐115

‐117

‐120

Reserve Margin, %

17%

‐6%

‐28%

‐29%

‐27%

‐26%

‐26%

‐25%

‐25%

‐24%

‐24%

‐24%

‐24%

‐24%

‐24%

UNSElectric

Page‐29

Resource Cap

acity

Table3detailsUNSE’scurrentresourceportfoliobasedonaresource’scapacitycontributiontosystempeak.

Table3–CapacityResources,SystemPeakDem

and(MW)

Firm

Resource Cap

acity (MW)

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Gila River Power Station

137.5

137.5

137.5

137.5

137.5

137.5

137.5

137.5

137.5

137.5

137.5

137.5

137.5

137.5

137.5

Black M

ountain

90

90

90

90

90

90

90

90

90

90

90

90

90

90

90

Valen

cia

63.5

63.5

63.5

63.5

63.5

63.5

63.5

63.5

63.5

63.5

63.5

63.5

63.5

63.5

63.5

Total N

atural G

as Resources

291

291

291

291

291

291

291

291

291

291

291

291

291

291

291

Utility Scale Ren

ewables

22

22

22

22

27

32

35

39

42

45

49

53

57

62

65

Dem

and Response

4

4

5

5

6

6

7

7

8

8

9

9

10

10

11

Total Ren

ewable & EE Resources

25

26

26

27

32

38

42

46

49

53

58

62

67

72

76

Short‐Term

Market Resources

200

100

0

0

0

0

0

0

0

0

0

0

0

0

0

Future Storage Resources

0

0

0

0

5

5

5

5

5

10

10

10

10

10

10

Total Firm Resources

516

417

317

318

328

334

338

342

345

354

359

363

368

373

377


Page‐30

Expected Annual Energy

Chart9showstheexpectedenergycontributionrequiredtomeetUNSE’sfirmloadobligationsbyyearandresourcetype.In2016,UNSE’senergyportfolioiscomprisedofapproximately65%purchasedpowerand22%naturalgasresources.ThebalanceoftheenergyrequiredisprovidedbyEE,DGandrenewablePVandwind.By2030,50%ofUNSE’senergyportfolioisunsubscribedthoughtheenergyefficiencyandrenewablestandardwillbemet.Inthe2017FinalIRP,UNSEwillpresentabalancedanddiversifiedportfoliotomeetfutureenergyneeds.

Chart9–ExpectedAnnualEnergyRequirements(GWh)

UNSElectric

Page‐31

Community Scale Renewables and Distributed Generation

CommunityScaleRenewablesUNSEismovingtowardadiverseportfolioofrenewableresourcesthatcomplieswiththeArizonaRenewableEnergyStandard(“RES”).UNSEiscommittedtomeettherenewableenergystandardgoals,whichrequiresUNSEtoobtainrenewableenergywhichisequivalentto6%ofits2016retailloadrequirementandgrowingto15%by2025.Inthefirstquarterof2014,UNSEadded7.2MW(DC)ofsolarPVinRioRico,Arizona.Thisresourceadditionbringsthetotalrenewablecapacitytonearly30MW.TheadditionofRedHorseSolar(seeTable4below)willputUNSEabovecompliancein2016byapproximately2%.

EXISTING RENEWABLE RESOURCES

OverviewOverthelastseveralyears,UNSEhasworkedwiththird‐partycontractorstodevelopthreenewrenewableresourceprojectswithinUNSE’sserviceterritory.Inaddition,theCompanyiscurrentlyworkingwithTorchRenewablestodevelopanewsolarfixedPVprojectlocatedinWillcox,Arizona.Table4belowprovidesanoverviewonUNSErenewableprojects.

Table4–UNSE’sRenewableResources(ExistingandPlanned)

Resource‐ Counterparty Owned/PPA Technology Location Operator‐

Manufacturer Completion

Date Capacity MW

Western Wind PPA Wind Kingman, AZ Western Wind Sept 2011 10.3

La Senita School Owned SAT PV Kingman, AZ Solon Nov 2011 0.98

Black Mountain PPA SAT PV Kingman, AZ Solon Jun 2012 8.9

Rio Rico Owned PV Rio Rico, AZ Gehrlicher Mar 2014 5.76

Red Horse Solar (Future) PPA SAT PV Willcox, AZ Torch Renewables Q2 2016 30

UNSE Owned Solar UNSE TBD Kingman, AZ TBD Q4 2016 5

Notes: PPA–PurchasedPowerAgreement–Energyispurchasedfromathirdpartyprovider. SATPV–SingleAxisTrackingPhotovoltaic PV–FixedPanelPhotovoltaic


Page‐32

LocationsofUNSRenewableProjects

DistributedGeneration

Bytheendof2015,UNSEhadapproximately20MWofrooftopsolarPVandsolarhotwaterheatingcapacity.Distributedgenerationisexpectedtosupplyatleast40GWhofenergyin2016.

.

UNSElectric

Page‐33

OverviewofUNSRenew

ablePortfolio


Page‐34

Energy Efficiency

Overview

ThissectionisanoverviewoftheelectricDemand‐SideManagement(“DSM”)programsthattargettheresidential,commercialandindustrial(“C&I”)sectors,aswellastheirassociatedproposedimplementationcosts,savings,andbenefit‐costresults.

UNSErecognizesthatenergyefficiencycanbeacost‐effectivewaytoreduceourrelianceonfossilfuels.UNSEoffersavarietyofenergysavingoptionsforcustomers,fromsimpleconsultationtoincentivesthatencouragebothhomeownersandbusinessestoinvestinefficientheatingandcoolingandotherenergyefficiencyupgrades.

UNSE,withinputfromotherpartiessuchasNavigantConsulting,Inc.(“Navigant”)andtheSouthwestEnergyEfficiencyProject(“SWEEP”),hasdesignedacomprehensiveportfolioofprogramstodeliverelectricenergyanddemandsavingstomeettheannualDSMenergysavingsgoalsoutlinedintheStandard.Theseprogramsincludeincentives,direct‐installandbuy‐downapproachesforenergyefficientproductsandservices;educationalandmarketingapproachestoraiseawarenessandmodifybehaviors;andpartnershipswithtradealliestoapplyasmuchleverageaspossibletoaugmentthereturnofrate‐payerdollarsinvested.

ThroughUNSE’sDSMprogramsUNSEhasmadegreatstridestowardmeetingtheaggressivegoalsintheStandard.TheStandardcallsoninvestor‐ownedelectricutilitiesinArizonatoincreasethekilowatt‐hoursavingsrealizedthroughcustomerratepayer‐fundedenergyefficiencyprogramseachyearuntilthecumulativereductioninenergyachievedthroughtheseprogramsreaches22percentby2020.

CurrentImplementationPlan,Goals,andObjectives

UNSE’shigh‐levelenergyefficiency‐relatedgoalsandobjectivesareasfollows:

Implementcost‐effectiveenergyefficiencyprograms

Designandimplementadiversegroupofprogramsthatprovideopportunitiesforparticipationforallcustomers

Whenfeasible,maximizeopportunitiesforprogramcoordinationwithotherefficiencyprograms(e.g.,SouthwestGasCorporation,ArizonaPublicServiceCorporation)toyieldmaximumbenefits

Maximizeprogramenergysavingsataminimumcostbystrivingtoachievecomprehensivecost‐effectivesavingsopportunities

ProvideUNSEcustomersandcontractorswithwebaccesstodetailedinformationonallefficiencyprograms(residentialandcommercial)forelectricitysavingsopportunitiesatwww.uesaz.com

Expandtheenergyefficiencyinfrastructureinthestatebyincreasingthenumberofavailablequalifiedcontractorsthroughtrainingandcertificationinspecificfields

Usetrainedandqualifiedtradealliessuchaselectricians,HVACcontractors,builders,architectsandengineerstotransformthemarketforefficienttechnologies

Educatecustomersonbehaviormodificationsthatenablethemtouseenergymoreefficiently.

UNSElectric

Page‐35

ProgramPortfolioOverviewAsdemonstratedinTable5,UNSE’sportfolioofprogramscanbedividedintoresidential,commercial,behavioral,andsupportsectorswithadministrativefunctionsprovidingsupportacrossallprogramareas.WiththeCommission’sapprovalofUNSE’s2015/2016EEPlan,UNSEhasaddedmeasureswithinexistingprogramsincludingenergystarappliances,HVAC,andlightingmeasures.

Table5–UNSElectricPortfolioofPrograms

Residential Sector Appliance Recycling

Energy Star Appliance Program

Existing Homes

Low Income Weatherization

Multi‐Family Direct Install

New Construction

Shade Trees

Behavioral Sector Community Education

K‐12 Energy Education

Commercial & Industrial Sector

Bid for Efficiency

C&I Facilities/Schools

C&I Demand Response

Retro‐Commissioning

Support Sector Education and Outreach

Energy Codes & Standards Enhancement


Page‐36

Transmission

Overview

TransmissionresourcesareakeyelementinUNSE’sresourceportfolio.AdequatetransmissioncapacitymustexisttomeetUNSE’sexistingandfutureloadobligations.UNSE’sresourceplanningandtransmissionplanninggroupscoordinatetheirplanningeffortstoensureconsistencyindevelopmentofitslong‐termplanningstrategy.Onastatewidebasis,UNSEparticipatesintheACC’sBiennialTransmissionAssessment(“BTA”)whichproducesawrittendecisionbytheACCregardingtheadequacyoftheexistingandplannedtransmissionfacilitiesinArizonatomeetthepresentandfutureenergyneedsofArizonainareliablemanner.

UNSEactivelyparticipatesintheregionaltransmissionplanningandcostallocationprocessofWestConnectasanenrolledmemberoftheTransmissionOwnerswithLoadServiceObligations(“TOLSO”)sectorincompliancewithFERCOrderNo.1000(“FERCOrder1000”).ThisfinalrulereformsFERC’selectrictransmissionplanningandcostallocationrequirementsforpublicutilitytransmissionproviders.WestConnectiscomposedofutilitycompaniesprovidingtransmissionofelectricityinthewesternUnitedStatesworkingcollaborativelytoassessstakeholderandmarketneedsanddevelopcost‐effectiveenhancementstothewesternwholesaleelectricitymarket.

Figure4–FERCOrder1000TransmissionPlanningRegions

SinceFERCOrder1000,WestConnectwentthroughitsfirstone‐yearregionalplanningandcostallocationprocessuponcompletionandapprovalofthe2015RegionalTransmissionPlaninDecember2015.Noprojectsubmittals,andthereforenocostallocationwasrequiredsincenoregionaltransmissionneedswereidentifiedinthisabbreviated2015cycle.

UNSElectric

Page‐37

PreparationforthefirstWestConnectbiennialregionaltransmissionplanningandcostallocationprocesscoveringtheperiodJanuary1,2016throughDecember31,2017beganinthelastquarterof2015.Preparationincludedinitiationofthe2016‐17RegionalStudyPlanprocessandacceptanceofscenariostobeevaluatedforinclusioninthestudyplanoccurredbyDecember31,2015.WestConnectconductsanassessmentoftransmissionplanningmodelsincorporatingthesescenariostoidentifytheneedfornewtransmission.Thekeydeliverableisaregionaltransmissionplanthatselectsregionaltransmissionprojectstomeetidentifiedreliability,economic,publicpolicy,orcombinationthereof,transmissionneeds.

ToassistwithArizona’sCPPstateplanningefforts,UNSEparticipatedwithAPS,SRP,SouthwestTransmissionCooperativeandTEPonaproposaltocoordinatedevelopmentofitsCPPcomplianceplan,andpreparedandsubmittedajointArizonaUtilityGroup(“AUG”)studyrequesttoWestConnecttobeincludedinthe2016‐17RegionalPlanningProcess.WorkingthroughtheregionalplanningprocessisthemostefficientmethodofachievingacredibleoutcomebecauseitisaccomplishedincoordinationwiththeotherthreewesternPlanningRegions(CaliforniaIndependentSystemOperator(“CAISO”),ColumbiaGridandNorthernTierTransmissionGroup)andthereforeincoordinationwithotherstates.AkeyobjectiveistohaveaccesstotheWestConnectpowerflowbasecasetoperformamorecrediblereliabilityanalysisontheArizonatransmissionsystemassessingtheimpactoftheCPPandmeetingBTAplanningrequirements.


Page‐38

UNSElectric

Page‐39

EMERGING TECHNOLOGIES

Small Modular Nuclear Reactors

Smallmodularnuclearreactors(“SMR”),approximatelyone‐thirdthesizeofcurrentnuclearplants,are

compactinsize(300MWorless)andareexpectedtooffermanybenefitsindesign,scale,andconstruction

(relativetothecurrentfleetofnuclearplants)aswellaseconomicbenefits.Asthenameimplies,being

modularallowsforfactoryconstructionandfreighttransportationtoadesignatedsite.Thesizeofthefacility

canbescaledbythenumberofmodulesinstalled.Capitalcostsandconstructiontimesarereducedbecausethe

modulesareself‐containedandreadytobe“dropped‐in”toplace.

AWorldNuclearAssociation2015reportonSMRstandardizationoflicensingandharmonizationofregulatory

requirements,saidthattheenormouspotentialofSMRsrestsonanumberoffactors:

Becauseoftheirsmallsizeandmodularity,SMRscouldalmost becompletelybuiltinacontrolledfactorysettingandinstalledmodulebymodule,improvingthelevelofconstructionqualityandefficiency.

Theirsmallsizeandpassivesafetyfeaturesmakethemfavorabletocountrieswithsmallergridsandlessexperienceofnuclearpower.

Size,constructionefficiencyandpassivesafetysystems(requiringlessredundancy)canleadtoeasierfinancingcomparedtothatforlargerplants.

Moreover,achieving‘economiesofseriesproduction’foraspecificSMRdesignwillreducecostsfurther.

TheWorldNuclearAssociationliststhefeaturesofanSMR,including:

Smallpower,compactarchitectureandemploymentofpassiveconcepts(atleastfornuclearsteamsupplysystemandassociatedsafetysystems).Thereforethereislessrelianceonactivesafetysystemsandadditionalpumps,aswellasACpowerforaccidentmitigation.

Thecompactarchitectureenablesmodularityoffabrication(in‐factory),whichcanalsofacilitateimplementationofhigherqualitystandards.

Lowerpowerleadingtoreductionofthesourcetermaswellassmallerradioactiveinventoryinareactor(smallerreactors).

Potentialforsub‐grade(undergroundorunderwater)locationofthereactorunitprovidingmoreprotectionfromnatural(e.g.seismicortsunamiaccordingtothelocation)orman‐made(e.g.aircraftimpact)hazards.

EmergingTechnologyChapter4


Page‐40

Themodulardesignandsmallsizelendsitselftohavingmultipleunitsonthesamesite.

Lowerrequirementforaccesstocoolingwater–thereforesuitableforremoteregionsandforspecificapplicationssuchasminingordesalination.

Abilitytoremovereactormoduleorin‐situdecommissioningattheendofthelifetime

TheWorldNuclearAssociationwebsitehasdetailedinformationrelatedtoSMRs.Thewebsiteislocatedat:http://www.world‐nuclear.org/info/nuclear‐fuel‐cycle/power‐reactors/small‐nuclear‐power‐reactors/

NuScalePowerTMisdeveloping50MWemodulesthatcanbescaledupto600MWe(12modules).ThescalabilityofSMRsallowsforsmallutilitieslikeUNSEtoconsidertheirviabilitywhilelesseningthefinancialrisk.InDecemberof2013,NuScalewasawardedagrantbytheDepartmentofEnergy(“DOE”)thatwouldcoverhalf(upto$217million)tosupportdevelopmentandreceivecertificationandlicensingfromtheNuclearRegulatoryCommission(“NRC”)onasinglemodule.

Inthefallof2014,NuScalesignedteamingagreementswithkeyutilitiesintheWesternregion,whichincludeEnergyNorthwestinWashingtonStateandtheUtahAssociationofMunicipalPowerSystems(“UAMPS”),representingmunicipalpowersystemsinUtah,Idaho,NewMexico,Arizona,Washington,Oregon,andCalifornia.Thisinitialproject,knownastheUAMPSCarbonFreePowerProject,wouldbesitedineasternIdahoandisbeingdevelopedwithpartnersUAMPS,whichwillbetheplantowner,andEnergyNorthwest,whichwillbetheoperator.Theteamexpectsthatthe12‐moduleSMRwillbeoperationin2024.

NuScaleCross‐sectionofTypicalNuScaleReactorBuilding

50MWeNuScalePowerModule

UNSElectric

Page‐41

Reciprocating Internal Combustion Engines

ReciprocatingInternalCombustionEngines(“RICE”)aresimplycombustionenginesthatareusedin

automobiles,trucks,railroadlocomotives,constructionequipment,marinepropulsion,andbackuppower

applications.Moderncombustionenginesusedforelectricpowergenerationareinternalcombustionengines

inwhichanair‐fuelmixtureiscompressedbyapistonandignitedwithinacylinder.RICEarecharacterizedby

thetypeofcombustion:spark‐ignited,likeinatypicalgaspoweredvehicleorcompression‐ignited,alsoknown

asdieselengines.

Figure5–Wartsila‐50DF

Anemergingandpotentiallybeneficialuseoftheseenginesisinlarge‐scaleelectricutilitygeneration.The

combustionengineisnotanewtechnologybutemergingadvancesinefficiencyandtheneedforfast‐response

generationmakeitaviableoptiontostabilizevariableandintermittentelectricdemandandresources.RICE

hasdemonstratedthefollowingbenefits;

FastStartTimes–Theunitsarecapableofbeingon‐lineatfullloadwithin5minutes.Thefastresponseisidealforcyclingoperation.RICEcanbeusedto‘smooth’outintermittentresourceproductionandvariability.

RunTime‐Theunitsdonotrequiretobemaintainedatfullloadorshutdownforextendedperiodsoftime.Aftershutdown,theunitmustbedownfor5minutes,ataminimumtoallowforgaspurging.

ReducedO&M–CyclingtheunithasnoimpactonthewearofRICE.Theunitisimpactedbyhoursofoperationandnotbystartsandcyclingoperationsasisthecasewithcombustionturbines.

FastRamping–Atstart,theunitcanramptofullloadin2minutesonahotstartandin4minutesonawarmstart.Oncetheunitisoperational,itcanrampbetween30%and100%loadin40seconds.Thisrampingiscomparabletotheratethatmanyhydrofacilitiescanrampat.

MinimalAmbientPerformanceDegradation–ComparedtoAeroderivativeandFrametypecombustionturbines,RICEoutputandefficiencyisnotasdrasticallyimpactedbytemperature.ThesitealtitudedoesnotsignificantlyimpactoutputonRICEbelow5,000feet.


Page‐42

GasPressure–RICEcanrunonlowpressuregas,aslowas85PSI.MostCT’srequireacompressorforpressureat350PSI.

ReducedEquivalentForcedOutageRate(“EFOR”)–EachRICEhasanEFORoflessthan1%.AfacilitywithmultipleRICEwillhaveacombinedEFORthatisexponentiallylessbyafactorofthenumberofunitsatthefacility.

LowWaterConsumption–RICEuseaclosed‐loopcoolingsystemthatrequiresminimalwaterusage.

Modularity–EachRICEunitisbuiltatapproximately2to20MWsandisshippedtothesite.

AnintriguingapplicationforRICEisitspotentialforregulatingthevariabilityandintermittencyofrenewable

resources.InthefinalIRP,UNSEwillexplorethepossibilityofnaturalgaspoweredRICEinitsproposed

scenarios.

Figure6–ReciprocatingInternalCombustionEngineFacility

UNSElectric

Page‐43

DELIVERY TECHNOLOGY

TheFutureoftheDistributionGrid

Changesinthesupply,demand,anddeliveryofelectricityareremodelingelectricdistributionsystemsatmostNorthAmericanutilities.DistributedEnergyResources(“DERs”)areleadingmanyofthesechanges.Bycreatingenergysupplyinnew,small,intermittent,anddistributedlocationsacrossthegrid,DERshaverequirednewlevelsofsystemflexibility.DERshavealsocreatednewopportunitiesforelectricutilitiestoimproveperformance,tolowercosts,andtoimprovecustomersatisfaction.

ToaccommodateDERsandotherinnovations,electricutilitiesneedtodomorethanmaketheirdistributionsystemsbigger.Instead,utilitiesneedtomaketheirdistributionsystemssmarter.Smartdistributionsystemsprovideflexibility,capability,speedandresilience.Toachievenewlevelsofperformance,thesesmartdistributionsystemsincludenewtypesofsoftware,networks,sensors,devices,equipment,andresources.Toachievenewlevelsofeconomicvalue,thesesmartdistributionsystemsoperateaccordingtonewstrategiesandmetrics.WithmoredistributedgenerationresourcesbeingdeployedonUNSE’sdistributionsystem,higherdemandsandlowerenergyconsumptionisoccurringtoday.Thisputsdemandsonthetransmissionanddistributionsystemsthatwerenotcontemplatedintheoriginaldesignsandrequirementsofthesystem.Tomeetthesenewdemands,newmethodsandtechnologyneedstobedevelopedandimplemented.UNSEisintendingtoutilizetechnologytoaddmoresensingandmeasurementdevicesandnewmethodsformanagingandoperatingthedistributionsystem.Thisapproachturnsadistributionfeederintoaneffectivemicrogridsystem.

Figure7–SmartGridSystems


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Withincreaseddemandandlowerenergyconsumption,newtechniquesandstrategiesneedtobedevelopedandimplementedtoeffectivelymanagecosts.Byaddingadditionalmeasurementandsensingcapabilitiesthesituationalawarenessofthedistributionsystemwillbeincreased.Thesituationalawarenessallowsforrealtimeoperationsandplanningopportunitiesforefficiencyandproductivitychanges.Toutilizetheexistingdistributionsystemmoreefficiently,UNSEisinvestigatingtheuseofDERs,energystorage,energyefficiency,andtargeteddemandresponsecapabilitiesinconjunctionwithoptimizationsoftwaretoreducetheinfrastructureadditionsrequiredduetohighercustomerdemand.Thisstrategyismuchdifferentthanhowthedistributionsystemhasbeenmanagedinthepast.WearenowusingabottomupplanninganddesignprocessthatneedstobeintegratedwiththeIRPprocess.Newtoolsandcapabilitieswillberequiredasaresultofthenewopportunitiesandcapabilitiesenvisioned.

Atthecoreofthesechangesistheneedforacommunicationsnetworkthatallowsforintelligentelectronicdevicestobeinstalledonthedistributionsystem.Thecommunicationsnetworkallowsforthebackhaulofinformationfromtheintelligentelectronicdevicestocentralizedsoftwareandcontrolapplications.Simplycollectinganddisplayingmoresensingandmeasurementinformationwon’tprovidetheneededbenefits.Anintegratedapproachtotheinstallationoffielddevices,softwareapplicationsandhistoricaldatamanagementwillbeneeded.Adistributionmanagementsystem(“DMS”)isthecentralsoftwareapplicationthatprovidesdistributionsupervisorycontrolanddataacquisition(“SCADA”),outagemanagementandgeographicalinformationintoasingleoperationsview.Bycombiningtheinformationfromallthreeofthesesystemsintoasingleviewanelectricaldistributionsystemmodelcanbecreatedforbothrealtimeapplicationsandplanningneeds.Thesingleviewprovidessituationalawarenessofthedistributionsystemthathasnotbeenpossibleinthepast.Italsocreatesaplatformfromwhichadditionalapplicationscanbeimplementedtocontinuetoprovidevalueandnewopportunities.Thehistoricalinformationalsocreatesanewopportunitytodrivevalueanddecisionsbasedonsystemperformanceanddynamicsimulations.

WiththedevelopmentofmultipledistributionmicrogridfeedersandDERsystems,thechallengeofresourcedispatchingwilldevelop.Asolutiontodispatchacrossafleetofresourcesofexistingcentralizedgeneration,purchasedpowerfromthemarketandtheintermittencyofDERsystemstocustomerdemandwillberequired.Thespeedinwhichtheresourcepoolwillneedtochangeandoptimizeforefficiencyandcostwillrequirethesystemtobeautomated.Thedistributionmicrogridfeederconceptisintendedtohelpmanagethedistributionlevelintermittencybutwouldneedtobemonitoredandmanagedbytheautomatedsystemforresourcemanagement.Tomanagesuchalargeanddynamicsystemasoutlinedisasubstantialchallenge.Thistypeofautomatedsystemisnotcurrentlyavailablewithintheutilityindustry.

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Energy Storage

Theelectricindustryhasalwayshadaninterestinthepossibilityofstoringenergy.Utilitieshavealwaysstrivedtomaintainasafe,reliableandcosteffectiveelectricgrid.Newchallenges,suchastheemergenceofrenewablegenerationhasgeneratedagreaterinterestinelectricenergystorage.ThetopicofEnergyStorageSystems(“ESS”)coversmanydifferenttypesoftechnology.Eachtechnologyhasspecificattributesandapplicationthatleadtousingthembasedonindividualsystemrequirementsforanidentifiedneed.Theenergystoragetechnologiesaremadeupofsystemssuchaspumpedhydro,compressedairenergystorage,varioustypesofbatteries,andflywheels.

PumpedHydro‐Power–Thistechnologyhasbeeninusefornearlyacenturyworldwide.PumpedhydroaccountsformostoftheinstalledstoragecapacityintheUnitedStates.Pumpedhydroplantsuselowercostoff‐peakelectricitytopumpwaterfromalow‐elevationreservoirtoahigherreservoir.Whentheutilityneedstheelectricityorwhenpowerpricesarehigher,theplantreleasesthewatertoflowthroughhydroturbinestogeneratepower.

Typicalpumpedhydrofacilitiescanstoreupto10ormorehoursofwaterforenergystorage.Pumpedhydroplantscanabsorbexcesselectricityproducedduringoff‐peakhours,providefrequencyregulation,andhelpsmooththefluctuatingoutputfromothersources.Pumpedhydrorequiressiteswithsuitabletopographywherereservoirscanbesituatedatdifferentelevationsandwheresufficientwaterisavailable.Pumpedhydroiseconomicalonlyonalarge(250‐2,000MW)scale,andconstructioncantakeseveralyearstocomplete.

Theround‐tripefficiencyofthesesystemsusuallyexceeds70percent.Installationcostsofthesesystemstendtobehighduetositingrequirementsandobtainingenvironmentalandconstructionpermitspresentsadditionalchallenges.Pumpedhydroisaproventechnologywithhighpeakusecoincidence.ForUNSE,itisalessviableoptionduetolimitedavailablesitesandwaterresources.

CompressedAirEnergyStorage(“CAES”)–Aleadingalternativeforbulkstorageiscompressedairenergystorage.CAESisahybridgeneration/storagetechnologyinwhichelectricityisusedtoinjectairathighpressureintoundergroundgeologicformations.CAEScanpotentiallyoffershorterconstructiontimes,greatersitingflexibility,lowercapitalcosts,andlowercostperhourofstoragethanpumpedhydro.ACAESplantuseselectricitytocompressairintoareservoirlocatedeitheraboveorbelowground.Thecompressedairiswithdrawn,heatedviacombustion,andrunthroughanexpansionturbinetodriveagenerator.Thedispatchtypicallywilloccurathighpowerpricesbutalsowhentheutilityneedstheelectricity,

CAESplantsareinoperationtoday—a110‐MWplantinAlabamaanda290‐MWunitinGermany.Bothplantscompressairintoundergroundcavernsexcavatedfromsaltformations.TheAlabamafacilitystoresenoughcompressedairtogeneratepowerfor26hoursandhasoperatedreliablysince1991.

CAESplantscanuseseveraltypesofair‐storagereservoirs.Inadditiontosaltcaverns,undergroundstorageoptionsincludedepletednaturalgasfieldsorothertypesofporousrockformations.EPRIstudiesshowthatmorethanhalftheUnitedStateshasgeologypotentiallysuitableforCAESplantconstruction.Compressedaircanalsobestoredinabove‐groundpressurevesselsorpipelines.Thelattercouldbelocatedwithinright‐of‐waysalongtransmissionlines.Respondingrapidlytoloadfluctuations,CAESplantscanperformrampingdutytosmooththeintermittentoutputofrenewablegenerationsourcesaswellasprovidespinningreserveandfrequencyregulationtoimproveoverallgridoperations.

Batteries–Severaldifferenttypesoflarge‐scalerechargeablebatteriescanbeusedforESSincludingleadacid,lithiumion,sodiumsulfur(NaS),andredoxflowbatteries.Batteriescanbelocatedindistributionsystems


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closertoenduserstoprovidepeakmanagementsolutions.Anaggregationoflargenumbersofdispersedbatterysystemsinsmart‐griddesignscouldevenachievenearbulk‐storagescales.

Inaddition,ifplug‐inhybridelectricvehiclesbecomewidespread,theironboardbatteriescouldbeusedforESS,byprovidingsomeofthesupportingor“ancillary”servicesintheelectricitymarketsuchasprovidingcapacity,spinningreserve,orregulationservices,orinsomecases,byprovidingload‐levelingorenergyarbitrageservicesbyrechargingwhendemandislowtoprovideelectricityduringpeakdemand.

Flywheels–Theserotatingdiscscanbeusedforpowerqualityapplicationssincetheycanchargeanddischargequicklyandfrequently.Inaflywheel,energyisstoredbyusingelectricitytoacceleratearotatingdisc.Toretrievestoredenergyfromtheflywheel,theprocessisreversedwiththemotoractingasageneratorpoweredbythebrakingoftherotatingdisc.

Flywheelsystemsaretypicallydesignedtomaximizeeitherpoweroutputorenergystoragecapacity,dependingontheapplication.Low‐speedsteelrotorsystemsareusuallydesignedforhighpoweroutput,whilehigh‐speedcompositerotorsystemscanbedesignedtoprovidehighenergystorage.Amajoradvantageofflywheelsistheirhighcyclelife—morethan100,000fullcharge/dischargecycles.

Scale‐powerversionsofthesystem,a100kWversionusingmodifiedexistingflywheelswhichwasaproofofconceptonapproximatelya1/10thpowerscale,performedsuccessfullyindemonstrationsfortheNewYorkStateEnergyResearchandDevelopmentAuthorityandtheCaliforniaEnergyCommission.

EnergyStorageApplicability

Althoughthelistofenergystoragetechnologiesdiscussedaboveisnotall‐inclusive,itbeginstoillustratethepointthatnoteverytypeofstorageissuitableforeverytypeofapplication.Typicaluseapplicationsforenergystoragetechnologiesmayinclude:

EnergyManagement–Batteriescanbeusedtoprovidedemandreductionbenefitsattheutility,commercialandresidentiallevel.Batteriescanbeidealordesignedtoreplacetraditionalgaspeakingresources.Theycanalsobeusedasshort‐termreplacementduringemergencyconditions.

LoadandResourceIntegration–Energystoragesystemscanbedesignedtosmooththeintermittencycharacteristicsofspecificloadsand/orsolarsystemsduringcloudmigrations.

AncillaryServices–Flywheelsandbatterieshavethepotentialtobalancepowerandmaintainfrequency,voltageandpowerqualityatspecifiedtolerancebands.

GridStabilization–PumpedHydro,CAESandvariousbatteriescanimprovetransmissiongridperformanceaswellasassistwithrenewablegenerationstabilization.

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Becauseofthedifferentusecasepotentialsthetechnologiescanbeimplementedinaportfoliostrategy.Therearefourchallengesrelatedtothewidespreaddeploymentofenergystorage:

CostCompetitiveEnergyStorageTechnologies(includingmanufacturingandgridintegration)

ValidatedReliability&Safety

EquitableRegulatoryEnvironment

IndustryAcceptance

UNSEshowstheneedtodevelopaportfoliooffuturestoragetechnologiesthatwillsupportlong‐termgridreliability.Theneedforfuturestoragetechnologiesisfocusedonsupportingtheneedforquickresponsetimeancillaryservices.Theseservicesarelistedbelow:

LoadFollowing/Ramping

Regulation

VoltageSupport

PowerQuality

FrequencyResponse


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ThefollowingisanarrativefromLazard’sfirstversionofitsLevelizedCostofEnergyAnalysis11.Lazard’sfirstversionofitsLevelizedCostofStorageAnalysis(LCOE1.0)providesanindependent,in‐depthstudythatcomparesthecostsofenergystoragetechnologiesforparticularapplications.12Thestudy’spurposeistocomparethecost‐effectivenessofeachtechnologyonan“applestoapples”basiswithinapplications,andtocompareeachapplicationtoconventionalalternatives.13KeyfindingsofLCOS1.0include:1)selectenergystoragetechnologiesarecost‐competitivewithcertainconventionalalternativesinanumberofspecializedpowergridusesand2)industryparticipantsexpectcoststodecreasesignificantlyinthenextfiveyears,drivenbyincreasinguseofrenewableenergygeneration,governmentalandregulatoryrequirementsandtheneedsofanagingandchangingpowergrid.

LAZARD’S STORAGE ANALYSIS: KEY FINDINGS

CostCompetitiveStorageTechnologies

Selectenergystoragetechnologiesarecost‐competitivewithcertainconventionalalternativesinanumberofspecializedpowergriduses,butnonearecost‐competitiveyetforthetransformationalscenariosenvisionedbyrenewableenergyadvocates.

Althoughenergystoragetechnologyhascreatedagreatdealofexcitementregardingtransformationalscenariossuchasconsumersandbusinesses“goingoffthegrid”ortheconversionofrenewableenergysourcestobaseloadgeneration,itisnotcurrentlycostcompetitiveinmostapplications.However,someusesofselectenergystoragetechnologiesarecurrentlyattractiverelativetoconventionalalternatives;theseusesrelateprimarilytostrengtheningthepowergrid(e.g.,frequencyregulation,transmissioninvestmentdeferral).

Today,energystorageappearsmosteconomicallyviablecomparedtoconventionalalternativesinusecasesthatrequirerelativelygreaterpowercapacityandflexibilityasopposedtoenergydensityorduration.Theseusecasesincludefrequencyregulationand—toalesserdegree—transmissionanddistributioninvestmentdeferral,demandchargemanagementandmicrogridapplications.Thisfindingillustratestherelativeexpenseofincrementalsystemdurationasopposedtosystempower.Putsimply,“batterylife”ismoredifficultandcostlytoincreasethan“batterysize.”Thisislikelywhythepotentiallytransformationalusecasessuchasfullgriddefectionarenotcurrentlyeconomicallyattractive—theyrequirerelativelygreaterenergydensityandduration,asopposedtopowercapacity

LCOS1.0findsawidevariationinenergystoragecosts,evenwithinusecases.Thisdispersionofcostsreflectstheimmaturityoftheenergystorageindustryinthecontextofpowergridapplications.Thereisrelativelylimitedcompetitionandamixof“experimental”andmorecommerciallymaturetechnologiescompetingattheusecaselevel.Further,seeminglyasaresultofrelativelylimitedcompetitionandlackofindustrytransparency,somevendorsappearwillingtoparticipateinusecasestowhichtheirtechnologyisnotwellsuited

11 Lazardisapreeminentfinancialadvisoryandassetmanagementfirm.Moreinformationcanbefoundathttps://www.lazard.com 12LazardconductedtheLevelizedCostofStorageanalysiswithsupportfromEnovationPartners,anleadingenergyconsultingfirm.13Energystoragehasavarietyofuseswithverydifferentrequirements,rangingfromlarge‐scale,powergrid‐orientedusestosmall‐scale,consumer‐orienteduses.TheLCOSanalysisidentifies10“usecases,”andassignsdetailedoperationalparameterstoeach.Thismethodologyenablesmeaningfulcomparisonsofstoragetechnologieswithinusecases,aswellasagainsttheappropriateconventionalalternativestostorageineachusecase.

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FutureEnergyStorageCostDecreases

Industryparticipantsexpectcoststodecreasesignificantlyinthenextfiveyears,drivenbyincreasinguseofrenewableenergygeneration,governmentpoliciespromotingenergystorageandpressuringcertainconventionaltechnologies,andtheneedsofanagingandchangingpowergrid.

Industryparticipantsexpectincreaseddemandforenergystoragetoresultinenhancedmanufacturingscaleandability,creatingeconomiesofscalethatdrivecostdeclinesandestablishavirtuouscycleinwhichenergystoragecostdeclinesfacilitatewiderdeploymentofrenewableenergytechnology,creatingmoredemandforstorageandspurringfurtherinnovationinstoragetechnology

CostdeclinesprojectedbyIndustryparticipantsvarywidelybetweenstoragetechnologies—lithiumisexpectedtoexperiencethegreatestfiveyearbatterycapitalcostdecline(~50%),whileflowbatteriesandleadareexpectedtoexperiencefiveyearbatterycapitalcostdeclinesof~40%and~25%,respectively.Leadisexpectedtoexperience5%fiveyearcostdecline,likelyreflectingthefactthatitisnotcurrentlycommerciallydeployed(and,possibly,theoptimismofitsvendors’currentquotes)

Themajorityofnear‐tointermediate‐costdeclinesareexpectedtooccurasaresultofmanufacturingandengineeringimprovementsinbatteries,ratherthaninbalanceofsystemcosts(e.g.,powercontrolsystemsorinstallation).Therefore,usecaseandtechnologycombinationsthatareprimarilybattery‐orientedandinvolverelativelysmallerbalanceofsystemcostsarelikelytoexperiencemorerapidlevelizedcostdeclines.Asaresult,someofthemost“expensive”usecasestodayaremost“levered”torapidlydecreasingbatterycapitalcosts.Ifindustryprojectionsmaterialize,someenergystoragetechnologiesmaybepositionedtodisplaceasignificantportionoffuturegas‐firedgenerationcapacity,inparticularasareplacementforpeakinggasturbinefacilities,enablingfurtherintegrationofrenewablegeneration

Seethefullreportathttps://www.lazard.com/media/2391/lazards‐levelized‐cost‐of‐storage‐analysis‐10.pdf


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OTHER RESOURCE PLANNING TOPICS

Energy Imbalance Market

Energyimbalanceonanelectricalgridoccurswhenthereisadifferencebetweenreal‐timedemand,orloadconsumption,andgenerationthatisprescheduled.Priortotheemergenceofrenewableenergytechnologyonthegrid,balancingoccurredtocorrectoperatinglimitswithin30minutes.Flowsareoftenmanagedmanuallybysystemoperatorsandtypicallybilaterallybetweenpowersuppliers.Theintermittentcharacteristicsofwindandsolarresourceshaveraisedconcernsabouthowsystemoperatorswillmaintainbalancebetweenelectricgenerationanddemandinsmallerthanthirtyminuteincrements.EnergyImbalanceMarkets(“EIMs”)createamuchshorterwindowmarketopportunityforbalancingloadsandresources.AnEIMcanaggregatethevariabilityofresourcesacrossmuchlargerfootprintsthancurrentbalancingauthoritiesandacrossbalancingauthorityareas.Thesubhourlyclearing,insomecasesdownto5minutespotentiallyprovideseconomicadvantagetoparticipantsinthemarket.EIMsproposetomoderate,automateandeffectivelyexpandsystem‐widedispatchwhichcanhelpwiththevariabilityandintermittencyofrenewableresources.EIMsboasttocreatesignificantreliabilityandrenewableintegrationbenefitsbysharingresourcereservesacrossmuchlargerfootprints.

CAISO–EIM

OnNovember1,2014,theCAISOwelcomedPacifiCorpintothewesternEIM.Nevada‐basedNVEnergybeganactiveparticipationintheEIMonDecember1,2015.ThisvoluntarymarketserviceisavailabletoothergridsintheWest.SeveralWesternutilitieshavecommittedtojointheEIM.Meanwhile,workisunderwayforPugetSoundEnergyinWashingtonandArizonaPublicServicetoenterthereal‐timemarketinOctober2016.Inthefallof2015,PortlandGeneralElectricandIdahoPowereachannouncedtheirintentionstopursueEIMparticipation.

ParticipantsintheEIMexpecttorealizeatleastthreebenefits:

Produceeconomicsavingstocustomersthroughlowerproductioncosts

ImprovevisibilityandsituationalawarenessforsystemoperationsintheWesternInterconnection

Improveintegrationofrenewableresources

TEPhascontractedwiththeenergyconsultingfirmE3toperformastudytodeterminetheeconomicbenefitsofTEPparticipatingintheenergyimbalancemarket.E3willevaluateEIMbenefitstoTEPbasedonasetofstudyscenariosdefinedthroughdiscussionswithTEPtoreflectTEPsysteminformation,includingloads,resources,andpotentialtransmissionconstraintsforaccesstomarketsforreal‐timetransactions.TheprojectanalysisbeganinFebruary2016andisexpectedtobecompletedbytheendofJune,2016.TEPwillthenevaluatetherelevantcostsandbenefitsofjoiningthewesternEIM.UNSEiswithintheTEPbalancingauthorityandthereforewillalsomakeadeterminationtoparticipatebasedontheTEPanalysisandresults.

Chapter5


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Natural Gas Storage

Naturalgasisafuelsourcethatproduceslesscarbondioxidethancoalforagivenunitofenergygeneration.Naturalgas‐poweredelectricgenerationcanalsobemoreresponsiveandsupportiveofthevariabilityandintermittencyofrenewablegeneration.Naturalgasusagehashistoricallyundergoneseasonalfluctuationswithhigherconsumptionduringthewintermonthsduetoresidentialandcommercialheating.Thedisplacementofcoalandtheemergenceofrenewablegenerationwilllikelyshiftgasdemandincreasestothesummermonths.Asutilitiespotentiallybegantoleanmoretowardnaturalgas‐poweredelectricgeneration,anensuingissueorconcernistheabilityofsupplyanddeliverabilitytomeetincreaseddemand.Theavailabilityofnaturalgasstoragehelpsalleviatesomeconcern.

Naturalgasispivotalinmaintainingareliableelectricgrid.Naturalgasstorageprovidesareliabilitybackstoptoamultitudeofdisruptionsthatmayimpactthedeliveryofnaturalgas.Storagehelpstolevelthebalanceofproduction,whichisrelativelyconstant,andtheseasonallydrivendemandorconsumption.Gascanbeinjectedintostoragewhiledemandislowandreleasedforconsumptionwhiledemandishighorwhiletherearedisruptionsinsupply.MuchlikewaterstoredbehinddamsallowsfortimelyirrigationofseasonalcropsandforNaturalgasstorageistypicallystoredundergroundandprimarilyinthreedifferentformations;depletedoiland/orgasreservoirs,aquifersandsaltcavernformations.

Figure8–NaturalGasStorageTypes

Source:EIAEnergyInformationAdministration

DepletedReservoirs–Thereservoirsresultfromthevoidremainingaftergasoroilisrecovered.Depletedreservoirsaremorewidelyavailableandthemostutilized.Thisformofstorageisthemostcommonfornaturalgasstorage.Theiravailability,ofcourse,isdependentonthelocationofexistingwellsandpipelineinfrastructure.Tomaintainadequatewithdrawalpressure,upto50%ofthestoredgascapacitybecomes

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unrecoverablecushiongas,thisdependsonhowmuchnativegasremainsinthereservoir.Injectionandwithdrawalratesarealsodependentonthegeologicalcharacteristics.

Aquifers–TheuseofaquifershasbeenmoreprevalentintheMidwesternUnitedStates.Inthecaseofdepletedgasandaquiferstoragereservoirs,theeffectivenessofstorageisprimarilydependentonthegeologicalconditions.Therockformationporosity,permeability,andretentioncapabilityareimportant.Asuitableaquiferisonethatisoverlaidwithimpermeablecaplayer.Unlikedepletedreservoirs,whereexpensiveinfrastructurewasinstalledduringtheexplorationandextractionofoilandgas,aquifersrequireextensivecapitalinvestment.Sinceaquifersarenaturallyfullofwater,insomeinstancespowerfulinjectionequipmentmustbeused,toallowsufficientinjectionpressuretopushdowntheresidentwaterandreplaceitwithnaturalgas.Aquiferstypicallyoperatewithonewithdrawalperiodperyear;thisisbecauseofslowfilltopushwaterback.

SaltCaverns–ThebestopportunityfornaturalgasstorageinArizonaandintheSouthwestmightbeinsaltcaverns.Saltcavernsallowforhighwithdrawalandinjectionratesofnaturalgas.Thismakessaltcavernsidealtomeetdemandincreasesortooperateasemergencyback‐upsystems.Saltcavernsarecreatedthroughaprocesscalledsolutionmining;freshwaterisblastedintosaltformationsandthemixtureisflushedtothesurfacecreatingachamber.Thechambersarestructurallystrongandextremelyairtight.Whilecushiongasisstillrequiredata20%to30%level,itislessthanrequiredfordepletedreservoirs.

Integration of Renewables

ThevalueandcostofrenewablesolarPVisestimatedtochangewithincreasedpenetration.TodeterminethevalueofsolarPV,it’simperativetounderstanditsrelationshiptoconsumerload.InthecaseofDistributedGeneration,mostrenewablesolarissited‘behindthemeter’oroncustomerfacilities.TherelationshipofaDGsolarinstallationataresidentialsiteisassumedtobedifferentthananinstallationatacommercialsite.Wecanassumethatresidentialpeakloadoccurssoonafterconsumersarrivehomefromwork.Commercialpeaktendstooccurduringtheearlytomid‐afternoonworkhours.Thisisanimportantdistinctioninthisdiscussionbecausethecostsandvaluevaryduebetweenthemultiplecustomertypes.Howeverforthisdiscussionwewillreferonlytotheimpactonthesysteminitsentiretyandforsolarasawhole.

Historically,electricutilitieswithpredominantairconditioningloadsetapeakdemandbetween4:00PMto5:00PMonasummerday.SolarPVcanhelpreducethispeakbutnotatthefullpotentialofitssolaroutput.Fixedarraysolarpeakproductionistypicallyat12:00to1:00PM,whilesingle‐axistrackingsystemscanexpanditspotentialtocoincidemorewiththeretailpeakdemand.UNSE’scurrentrenewableportfolio(toincludeDGandwind)isatapproximately5%of2030retailenergyprojection.

Chart10belowdemonstratesthattheexistingpenetrationofsolaralreadyhasanobservablereductiontoretailpeakdemand.Closerexaminationalsorevealsthatthenetpeakisbeginningtoshifttotheright.Thereductiontothepeakin2030fromexistingsolarisapproximately4%.Whileareductiontoretailpeakisobserved,only40%ofthesolarinstalledcapacitycontributestothatreduction.

UNSEiscommittedtomeetingthe15%RESby2025.Bymaintainingthatcommitmentthrough2030,thesolarcomponentoftherenewableportfolioreducespeakbyanother6%.Thoughthereisanobviousreductioninpeak,thetimethepeakissetisshiftingclosertothelastdiurnalhourofatypicalclear‐skysummerday(7:00to8:00PM).Itissignificantthentonotethatthoughweintroducea30%renewabletargetwithahighpenetrationofsolar,thereductiontothenewshifted(7:00PM)peakattributedtosolarisbeginningtodiminish.Weobservea1%reductiontoretailpeakbutasignificantdrop(from40%to6%)topeak


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contributionfromtheincrementalsolarcapacityadditions.Asretailloadgrows,solarPV(withoutstoragecapabilities)cannotcontributetothereductionofpeakdemandbeyond7:00PM;regardlessofitspenetration.

Chart10–ImpactofIncreasedSolarProduction(DuckCurve)

Whileitcanbearguedthatsolarmaycontributetoreducedlosses,toapportionedcapacityreductions(generationandtransmission),andcarbonemissionreductionsamongotherbenefits,wenotefromthechartabovethatotherchallengesarise.Asthesunisrising,electricloadstabilizesandbeginsanascenttowardthepeak.IncreasedpenetrationofsolarcreatesarapidnetdropinloadandUNSEmusthavegeneratorsthatarecapableoframpingdownatafastrate.Mostbase‐loadunitssuchascoalandgas‐steamarechallengedtorespondtothisrampdownandsubsequentrampup.Itisatthispointthatthenetreductioninloadcancreatetheneedforrapidrespondinggeneratorstoregulatetheinitialsteepdeclineinloadfollowedbyanimmediaterise.Fromaresourceplanningcontext,withtheincreasingpenetrationofsolarsystems,wemusttakeintoconsiderationtherightcombinationofresourcestorespondtothevariabilityandintermittencyofrenewablesystems.Aportfoliowithahighpenetrationofsolarandotherrenewablesmaynecessitatetheinstallationofreciprocatinginternalcombustionenginesand/orstorageintheformofbatteriesorgas.

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Natural Gas Reserves Provenreservesofnaturalgasareestimatedquantitiesthatanalysesofgeologicalandengineeringdatahavedemonstratedtobeeconomicallyrecoverablefromknownreservoirsinthefuture.AccordingtoEIA,majoradvancesinnaturalgasexplorationandtechnologyhasincreasedreservesin2014to388.8trillioncubicfeet(Tcf)from354.0Tcfreservesin2013.

Table9–U.SProvedReservesandReserveChanges(2013to2014) Wet Natural Gas ‐Tcf

U.S. proven reserves at December 31, 2013 354.0

Total discoveries 50.5

Net revisions 1.0

Net Adjustments, Sales, Acquisitions 11.5

Production ‐28.1

Net additions to U.S. proved reserves 34.8

U.S. proven reserves at December 31, 2014 388.8

Percent change in U.S. proved reserves 9.8% Notes: Total natural gas includes natural gas plant liquids. Columns may not add to total because of independent rounding. Source: U.S. Energy Information Administration, Form EIA‐23L, Annual Survey of Domestic Oil and Gas Reserves

Provenreservesareaddedeachyearwithsuccessfulexploratorywellsandasmoreislearnedaboutfieldswherecurrentwellsareproducing.Theapplicationofnewtechnologiescanconvertpreviouslyuneconomicnaturalgasresourcesintoprovenreserves.U.S.provenreservesofnaturalgashaveincreasedeveryyearsince1999.Figure10illustratesthedistributionofthereservesbystateandoffshorearea.

Figure10–EIANaturalGasProvenReservesbyState/Area(2014)


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Utility Ownership in Natural Gas Reserves

Asutilitiesplacemorerelianceoncleanermoreefficientnaturalgasresources,UNSEhasbeenresearchingnewwaystolockinlong‐termfuelpricestabilityfornaturalgas.Onepotentialsolutionbeingexploredbyanumberofgasandelectricutilitiesistheinvestmentandownershipinphysicalnaturalgasreserves.

Overthelastfewyears,anumberofutilitieshavepartneredwiththird‐partynaturalgasproducerstodeveloppartnershipstoacquireanddevelopnaturalgasreserves.Thesepartnershipswereformedasanalternativeapproachtoexistingfinancialhedgingpracticesandwereseenasawayforcompaniestodevelopalong‐termphysicalhedgeforitsexpandinggasgenerationfleet.

Productionofoilandassociatednaturalgashasgrownsubstantiallyoverthelastseveralyearsleadingtoasupplysurplusthathasdepressednaturalgaspricestothelowesttheyhavebeenintwentyyears.Asaresult,thisenvironmentcreatesopportunitiesforutilitiesandotherlargegaspurchaserstoacquirenaturalgasreservesathistoriclows.Thefigurebelowhighlightsanumberofcompaniesthathavesuccessfullydevelopedpartnershipsaroundnaturalgasreserveownership.

Figure11‐OverviewofRecentUtility‐ThirdPartyGasReserveProjects

Regionalcoaldiversificationstrategiesandtheshifttorelyonmorenaturalgaswillencourageutilitiestosecurenaturalgasreserves.TheCompanyplanstoexplorehowitmightpursuesimilarpartnershipswithregionalgasandelectricutilitiesinaneffortsecurelong‐termnaturalgaspricestabilityforitscustomers.

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FUTURE RESOURCE OPTIONS AND MARKET ASSUMPTIONS Inconsideringfutureresources,theresourceplanningteamevaluatesamixofrenewableandconventionalgenerationtechnologies.Thismixoftechnologiesincludedbothcommerciallyavailableresourcesandpromisingnewtechnologiesthatarelikelytobecometechnicallyviableinthenearfuture.TheIRPprocesstakesahigh‐levelapproachandfocusesonevaluatingresourcetechnologiesratherthanspecificprojects.Thisapproachallowstheresourceplanningteamtodevelopawide‐rangeofscenariosandcontingenciesthatresultinaresourceacquisitionstrategythatcontemplatesfutureuncertainties.Assumptionsoncostandoperatingcharacteristicsaretypicallygatheredfromseveraldatasources.BelowisalistofresourcesthatUNSEreliesontocompilecapitalcostassumptionsforthermalandrenewableresources:

U.S.EnergyInformationAdministration‐https://www.eia.gov/forecasts/aeo/electricity_generation.cfm

WesternElectricityCoordinatingCouncil(asrecommendedbyE3)‐https://www.wecc.biz/Reliability/2014_TEPPC_Generation_CapCost_Report_E3.pdf

Black&Veatch‐http://bv.com/docs/reports‐studies/nrel‐cost‐report.pdf

NationalRenewableEnergyLaboratory‐http://www.nrel.gov/analysis/re_futures/index.html

Lazard‐https://www.lazard.com/media/2390/lazards‐levelized‐cost‐of‐energy‐analysis‐90.pdf;https://www.lazard.com/media/2391/lazards‐levelized‐cost‐of‐storage‐analysis‐10.pdf

UNSEreliesonanumberofthird‐partydatasourcesandconsultantstoderiveassumptioninitson‐goingplanningpractices.Inaddition,informationgatheredthroughourcompetitivebiddingprocessorrequestforproposalprocesscanbeusedtoputbothself‐buildresourcesandmarket‐basedpurchasedpoweragreementsonacomparativebasis.

Chapter6


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Generation Resources – Matrix of Applications

Table6providesabriefoverviewofthetypesofgeneratingresourcesthatwillbeincludedandevaluatedintheresourceplanningprocessforthe2017finalIRP.Foreachtechnologytypeabriefsummaryofpotentialrisksandbenefitsarelisted.Inaddition,attributessuchascosts,sitingrequirements,dispatchability,transmissionrequirementsandenvironmentalpotentialaresummarized.

Table6‐ResourceMatrix

Category Type

Zero or Low

Carbon Potential

State of Technology

Local Area Option

Intermittent Peaking Load

Following Base Load

Energy Efficiency Energy

Efficiency Yes Mature Yes

Demand Response

Direct Load Control

Yes Mature Yes

Renewables

Wind Yes Mature

Solar PV Yes Mature Yes

Solar Thermal Yes Mature Storage (1)

Conventional

Reciprocating Engines

Mature

Combustion Turbines

Mature Yes Combined

Cycle (NGCC) Mature Yes

Small Modular Nuclear (SMR)

Yes Emerging (1) NaturalGashybridizationorthermalstoragecouldallowresourcetobedispatchedtomeetutilitypeakloadrequirements.

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Comparison of Resources

Generationplanningandresourceanalysiscanbeperformedbyusingawidespectrum

oftoolsandmethodologies.Priortorunningdetailed

simulationmodelsforthe2017FinalIRP,theUNSEresourceplanningteam

willcom

binethesourceinformationandsettleonthecostparam

etersfor

thevaryingtechnologies.Table7andTable8shownbelowdem

onstrateacom

parisonofcapitalcostestimates,usedbyUNSEinthe2012and2014

IRPsversuscostspublishedbyThird‐PartySources,forthermalandrenew

ableresourcesrespectively.Thetablesdem

onstratethevaryingrangeof

costs,evenwithineachtechnology.Inthe2017FinalIRP,theresourceplanninggroupwillincorporatetheinputfromthird‐partysources,

stakeholdersandotherdatasourcestoderiveareasonablesetofcostinputs(construction,EHV/interconnection,constructiontoincludeITC,fixed

O&M,variableO&M,andfuelcosts).

Table7–CapitalCostforThermalResources

Plant Construction Costs

Units

Small A

eroderivative

Combustion Turbine

Small Frame

Combustion

Turbine

Natural G

as

Reciprocating

Engines

Small M

odular

Reactor (SMR)

Natural G

as

Combined Cycle

(NGCC)

2012 IR

P

2012 $/kW

$1,156

$779

‐ ‐

$1,320

2014 IR

P

2014 $/kW

$1,062

$808

‐ ‐

$1,367

Third Party Source

2014 $/kW

$1,150

$825

$1,300

‐ $1,125

Third Party Source

2016 $/kW

$800 ‐ $1,000

$800 ‐ $1,000

$1,150

‐ $1,000 ‐ $1,300

Prelim

inary IRP Estim

ate 2016 $/kW

$1,250

$800

$1,200

$6,400

$1,300

Table8–CapitalCostforRenew

ableResources


Units

Solar Th

erm

al

6 Hour Storage

(100 M

W)

Solar

Fixed PV

(20 M

W)

Solar Single Axis Tracking

(20 M

W)

Wind Resources

(50 M

W)

2012 IR

P

2012 $/kW

$5,650

$2,350

$2,549

$2,400

2014 IR

P

2014 $/kW

$7,144

$1,993

$2,290

$2,278

Third Party Source

2014 $/kW

$7,100

$3,325

$3,800

$2,000

Third Party Source

2016 $/kW

$10,000 ‐ $10,300

$1,400 ‐ $1,500

$1,600 ‐ $1,750

$1,250 ‐ $1,700

Prelim

inary IRP Estim

ate 2016 $/kW

$10,000

$1,500

$1,600

$1,450


Page‐60

LEVELIZED COST COMPARISONS

Thecalculationofthelevelizedcostofelectricity(“LCOE”)providesacommonmeasuretocomparethecostofenergyacrossdifferentdemandandsupply‐sidetechnologies.TheLCOEtakesintoaccounttheinstalledsystempriceandassociatedcostssuchascapital,operationandmaintenance,fuel,transmission,taxincentivesandconvertsthemintoacommoncostmetricofdollarspermegawatthour.ThecalculationfortheLCOEisthenetpresentvalueoftotalcostsoftheprojectdividedbythequantityofenergyproducedoverthesystemlife.

Becauseintermittenttechnologiessuchasrenewablesdonotprovidethesamecontributiontosystemreliabilityastechnologiesthatareoperatorcontrolledanddispatched,theyrequireadditionalsysteminvestmentforsystemregulationandbackupcapacity.Aswithanyprojection,thereisuncertaintyaboutallofthesefactorsandtheirvaluescanvaryregionallyandacrosstimeastechnologiesevolveandfuelpriceschange.Furtherresourceutilizationisdependentonmanyfactors;theportfoliomix,regionalmarketprices,customerdemandandmust‐runrequirementsaresomeconsiderationsoutsideofLCOE.

TheLCOEprojectioncontainsmanyfactorsthatwillvarybetweennowandwhenthefinalIRPisfiledonApril1,2017.Assuch,UNSEwillderivethelevelizedcostsatthetimethatthecapitalcostsandotherinputsarepreparedforfinalanalysis.

UNSElectric

Page‐61

REN

EWABLE TEC

HNOLO

GIES – COST DETAILS

Table9includestherenewabletechnologycostsforthe2016Prelim

inaryIntegratedResourcePlan.

Table9‐Renew

ableResourceCostAssumptions


Units

Solar Th

erm

al

6 Hour Storage

(100 M

W)

Solar

Fixed PV

(20 M

W)

Solar Single Axis

Tracking

(20 M

W)

Wind Resources

(50 M

W)

Project Lead Tim

e

Years

4

2

2

2

Installation Years

First Year Available

2020

2018

2018

2018

Peak Capacity

MW

100

20

100

50

Plant Construction Cost

2016 $/kW

$9,800

$1,450

$1,550

$1,250

EHV/Interconnection Cost

2016 $/kW

200

50

50

200

Total Construction Cost

2016 $/kW

$10,000

$1,500

$1,600

$1,450

Operating Characteristics

Fixed

O&M

2016 $/kW

$80.00

$13.00

$10.00

$40.00

Typical Capacity Factor

Annual %

50%

29%

25%

33%

Expected Annual Output

GWh

438

110

127

145

Net Coinciden

t Peak

NCP%

85%

33%

51%

13%

Water Usage

Gal/M

Wh

800

0

0

0

ITC

Percent

30%

30%

30%

‐

PTC

$/M

Wh

‐ ‐

‐ $23.00

Levelized

Cost of En

ergy

$/M

Wh

$161

$54

$70

$49

2016Prelim

inaryIntegratedResourcePlan

Page‐62

CONVEN

TIONAL TECHNOLO

GIES – COST DETAILS

Table10includestheconventionalresourcecostassum

ptionsforthe2016Prelim

inaryIntegratedResourcePlan.

Table10‐ConventionalResourceCostAssumptions


Units

Small

Aeroderivative

Combustion

Turbine

Small Frame

Combustion

Turbine

Natural G

as

Reciprocating

Engines

Small

Modular

Reactor

(SMR)

Natural G

as

Combined

Cycle

(NGCC)

Project Lead Tim

e

Years

4

4

2

12

4

Installation Years

First Year Available

2020

2020

2018

2028

2020

Peak Capacity , M

W

MW

45

75

2

300

550

Plant Construction Cost

2016 $/kW

$1,200

$770

$1,070

$6,000

$1,135

EHV/Interconnection Cost

2016 $/kW

50

30

30

400

165

Total Construction Cost

2016 $/kW

$1,250

$800

$1,200

$6,400

$1,300

Operating Characteristics

Fixed O&M

2016 $/kW

$12.50

$13.25

$17.50

$29.30

$16.50

Variable O&M

2016 $/kW

$3.50

$3.75

$12.50

$5.00

$2.00

Gas Transportation

2016 $/kW

$16.80

$16.80

$16.80

‐ $16.80

Annual Heat Rate

Btu/kWh

9,800

10,500

9,000

10,400

7,200

Typical Capacity Factor

Annual %

15%

8%

45%

85%

50%

Expected Annual Output

GWh

59

53

8

2,234

2,409

Fuel Source

Fuel Source

Natural G

as

Natural G

as

Natural G

as

Uranium

Natural G

as

Unit Fuel Cost

$/m

mBtu

$5.67

$5.67

$5.67

$0.90

$5.67

Net Coincident Peak

NCP%

100%

100%

100%

100%

100%

Water Usage

Gal/M

Wh

150

150

50

800

350

Levelized

Cost of En

ergy

$/M

Wh

$247

$306

$135

$145

$103

UNSElectric

Page‐63

ThefollowingisanarrativefromLazard’sninthversionofitsLevelizedCostofEnergyAnalysis14.Lazard’sninthversionofitsLevelizedCostofEnergyAnalysis(LCOE9.0)analysisprovidesanindependent,in‐depthstudyofalternativeenergycostscomparedtoconventionalgenerationtechnologies.Thecentralfindingsofthestudyare:1)thecostcompetitivenessandcontinuedpricedeclinesofcertainalternativeenergytechnologies;2)thenecessityofinvestingindiversegenerationresourcesforintegratedelectricsystemsfortheforeseeablefuture;and3)theimportanceofrationalandtransparentpoliciesthatsupportamodernandincreasinglycleanenergyeconomy.

Lazard‐https://www.lazard.com/media/2390/lazards‐levelized‐cost‐of‐energy‐analysis‐90.pdf

LAZARD’s LEVELIZED COST OF ENERGY ANALYSIS: KEY FINDINGS

CostCompetivenessofAlternativeEnergyTechnologies

Certainalternativeenergytechnologies(e.g.,windandutility‐scalesolar)continuetobecomemorecost‐competitivewithconventionalgenerationtechnologiesinsomeapplications,despitelargedecreasesinthecostofnaturalgas.Lazard’sanalysisdoesnottakeintoaccountpotentialsocialandenvironmentalexternalities(e.g.,thesocialcostsofdistributedgeneration,environmentalconsequencesofconventionalgeneration,etc.)orreliability‐orintermittency‐relatedconsiderations(e.g.,transmissionsystemorback‐upgenerationcostsassociatedwithcertainalternativeenergytechnologies)

Despiteasharpdropinthepriceofnaturalgas,thecostofallformsofutility‐scalesolarphotovoltaicandutility‐scalewindtechnologiescontinuetoremaincompetitivewithconventionalgenerationtechnologiesasillustratedbytheproliferationofsuccessfulbidsbyrenewableenergyprovidersinopenpowerprocurementprocesses.

Currently,rooftopsolarPVisnotcostcompetitivewithoutsignificantsubsidies,due,inpart,tothesmall‐scalenatureandaddedcomplexityofrooftopinstallation.However,theLCOEofrooftopsolarPVisexpectedtodeclineincomingyears,partiallyasaresultofmoreefficientinstallationtechniques,lowercostsofcapitalandimprovedsupplychains.Importantly,LazardexcludesfromtheiranalysisthevalueassociatedwithcertainusesofrooftopsolarPVbysophisticatedcommercialandindustrialusers(e.g.,demandchargemanagement,etc.),whichappearsincreasinglycompellingtocertainlargeenergycustomers.

Communitybasedsolarprojects,inwhichmembersofasinglecommunity(e.g.,housingsubdivisions,rentalbuildings,industrialparks,etc.)owndividedinterestsinsmall‐scaleground‐mountedsolarPVfacilities,isbecomingmorewidespreadandcompellingincertainareas.Theseprojects,whichallowparticipantstoreceivecreditsagainsttheirelectricbillseitherbystatestatuteornegotiatedagreementsbetweentheprojectsponsorsandlocalutilities,providesolarenergyaccesstoconsumerswithouttheeconomicmeansorpropertyrightstoinstallrooftopsolarPV.However,whilecommunitysolarprojectsbenefitfromincreasedscaleanddecreasedinstallationcomplexityascomparedtorooftopsolarPV,mostcommunityscaleprojectsarerelativelysmallcomparedtoutility‐scalePVprojects,andarethereforemoreexpensivecomparedtoutility‐scalesolarPV.

Thepronouncedcostdecreaseincertainintermittentalternativeenergytechnologies,combinedwiththeneedsofanagingandchangingpowergridintheU.S.,hassignificantlyincreaseddemandforenergystoragetechnologiestofulfillavarietyofelectricsystemneeds(e.g.,frequencyregulation,transmission/substation

14 Lazardisapreeminentfinancialadvisoryandassetmanagementfirm.Moreinformationcanbefoundathttps://www.lazard.com


Page‐64

investmentdeferral,demandchargeshaving,etc.).Industryparticipantsexpectthisincreaseddemandtodrivesignificantcostdeclinesinenergystoragetechnologiesoverthenextfiveyears.Increasedavailabilityoflower‐costenergystoragewilllikelyfacilitategreaterdeploymentofcertainalternativeenergytechnologies.

Energyefficiencyremainsanimportant,cost‐effectiveformofalternativeenergy.However,costsforvariousenergyefficiencyinitiativesvarywidelyandmayfailtoaccountfortheopportunitycostsofforegoneconsumption.

Verylarge‐scaleconventionalandrenewablegenerationprojects(e.g.,IGCC,nuclear,solarthermal,etc.)continuetofaceanumberofchallenges,includingsignificantcostcontingencies,highabsolutecosts,competitionfromrelativelycheapnaturalgasinsomegeographies,operatingdifficultiesandpolicyuncertainty.

TheNeedforDiverseGenerationPortfolios

Despitetheincreasingcost‐competivenessofcertainalternativeenergytechnologies,futureresourceplanningeffortswillrequirediversegenerationfleetstomeetbaseloadgenerationneedsfortheforeseeablefuture.Theoptimalsolutionformanyutilitiesistousealternativeenergytechnologiesasacomplementtoexistingconventionalgenerationtechnologies.Overall,theU.S.willcontinuetobenefitfromabalancedgenerationmix,includingacombinationofalternativeenergyandconventionalgenerationtechnologies.

Whilesomealternativeenergytechnologieshaveachievednotional“gridparity”undercertainconditions(e.g.,best‐in‐classwind/solarresources),suchobservationdoesnottakeintoaccountpotentialsocialandenvironmentalexternalities(e.g.,socialcostsofdistributedgeneration,environmentalconsequencesofconventionalgeneration,etc.),orreliability‐relatedconsiderations.

TheImportanceofRationalandTransparentEnergyPolicies

Therapidlychangingdynamicsofenergycostshaveimportantramificationsfortheindustry,policymakersandthepublic.IntheU.S.,acoordinatedfederalandstateenergypolicy,groundedincostanalysis,couldenablesmarterenergydevelopment,leadingtosustainableenergyindependence,acleanerenvironmentandastrongereconomicbase.

Alternativeenergycostshavedecreaseddramaticallyinthepastsixyears,driveninsignificantpartbyfederalsubsidiesandrelatedfinancingtools,andtheresultingeconomiesofscaleinmanufacturingandinstallation.Manyofthesesubsidieshavealreadyorareexpectedtostepdownorexpireforselectedalternativeenergytechnologies.Akeyquestionforindustryparticipantswillbewhetherthesetechnologiescancontinuetheircostdeclinesandachievewideradoptionwithoutthebenefitofsubsidies

ThepublicnarrativesurroundingalternativeenergytechnologiesremainsfocusedtoalargedegreeonrooftopsolarPV,notwithstandingitssignificantlyhigherLCOErelativetoutility‐scalesolarPVandwind,anditspotentiallyadversesocialeffectsinthecontextofexistingnetmeteringregimes(e.g.,high‐incomehomeownersbenefitingfromsuchregimeswhilestillrelyingonthebroaderpowergrid,andrelatedcosttransferstotherelativelylessaffluent).Thisfocus,combinedwiththeavailabilityofgovernmentincentivesforrooftopsolar,distortsintelligentsystem‐wideintegratedresourceplanningandpolicy.

Seethefullreportathttps://www.lazard.com/media/2390/lazards‐levelized‐cost‐of‐energy‐analysis‐90.pdf

UNSElectric

Page‐65

Renewable Electricity Production Tax Credit (“PTC”)

Thefederalrenewableelectricityproductiontaxcreditisaninflation‐adjustedper‐kilowatt‐hour(kWh)taxcreditforelectricitygeneratedbyqualifiedenergyresourcesandsoldbythetaxpayertoanunrelatedpersonduringthetaxableyear.Thedurationofthecreditis10yearsafterthedatethefacilityisplacedinserviceforallfacilities.

InDecember2015,theConsolidatedAppropriationsAct,2016extendedtheexpirationdatefortheproductiontaxcredittoDecember31,2019,forwindfacilitiescommencingconstruction,withaphase‐downbeginningforwindprojectscommencingconstructionafterDecember31,2016.TheActextendedthetaxcreditforothereligiblerenewableenergytechnologiescommencingconstructionthroughDecember31,2016.TheActappliesretroactivelytoJanuary1,2015.

Thetaxcreditamountisadjustedforinflationbymultiplyingthetaxcreditamountbytheinflationadjustmentfactorforthecalendaryearinwhichthesaleoccurs,roundedtothenearest0.1cents.TheInternalRevenueService(“IRS”)publishestheinflationadjustmentfactornolaterthanApril1eachyearintheFederalRegistrar.For2015,theinflationadjustmentfactorusedbytheIRSis1.5336.

Applyingtheinflation‐adjustmentfactorforthe2014calendaryear,aspublishedintheIRSNotice2015‐20,theproductiontaxcreditamountisasfollows:

$0.023/kWhforwind,closed‐loopbiomass,andgeothermalenergyresources $0.012/kWhforopen‐loopbiomass,landfillgas,municipalsolidwaste,qualifiedhydroelectric,and

marineandhydrokineticenergyresources.

ThetaxcreditisphaseddownforwindfacilitiesandexpiresforothertechnologiescommencingconstructionafterDecember31,2016.Thephase‐downforwindfacilitiesisdescribedasapercentagereductioninthetaxcreditamountdescribedabove:

Table11–ProductionTaxCreditPhaseDown

Construction Year (1) PTC Reduction

2017 PTC amount is reduced by 20%



(1)Forwindfacilitiescommencingconstructioninyear.

Notethattheexactamountoftheproductiontaxcreditforthetaxyears2017‐2019willdependontheinflation‐adjustmentfactorusedbytheIRSintherespectivetaxyears.Thedurationofthecreditis10yearsafterthedatethefacilityisplacedinservice.

Seehttp://energy.gov/savings/renewable‐electricity‐production‐tax‐credit‐ptcformoredetails.


Page‐66

Energy Investment Tax Credit (“ITC”)

TheConsolidatedAppropriationsAct,signedinDecember2015,includedseveralamendmentstothefederalBusinessEnergyInvestmentTaxCreditwhichapplytosolartechnologiesandotherPTCeligibletechnologies.Notably,theexpirationdateforthesetechnologieswasextended,withagradualstepdownofthecreditsbetween2019and2022.

TheITChasbeenamendedanumberoftimes,mostrecentlyinDecember2015.Thetablebelowshowsthevalueoftheinvestmenttaxcreditforeachtechnologybyyear.Theexpirationdateforsolartechnologiesandwindisbasedonwhenconstructionbegins.Forallothertechnologies,theexpirationdateisbasedonwhenthesystemisplacedinservice(fullyinstalledandbeingusedforitsintendedpurpose).

Table12–InvestmentTaxCreditsbyYearandTechnology

Technology 2016 2017 2018 2019 2020 2021 2022 Future Years

PV, Solar Water Heating, Solar Space Heating/Cooling,

Solar Process Heat 30% 30% 30% 30% 26% 22% 10% 10%

Hybrid Solar Lighting, Fuel Cells, & Small Wind

30% ‐ ‐ ‐ ‐ ‐ ‐ ‐

Geothermal Heat Pumps, Microtubines,

Combined Heat and Power Systems

10% ‐ ‐ ‐ ‐ ‐ ‐ ‐

Geothermal Electric

10% 10% 10% 10% 10% 10% 10% 10%

Large 30% 24% 18% 12% ‐ ‐ ‐ ‐

Wind

SolarTechnologiesEligiblesolarenergypropertyincludesequipmentthatusessolarenergytogenerateelectricity,toheatorcool(orprovidehotwaterforusein)astructure,ortoprovidesolarprocessheat.Hybridsolarlightingsystems,whichusesolarenergytoilluminatetheinsideofastructureusingfiber‐opticdistributedsunlight,areeligible.Passivesolarsystemsandsolarpool‐heatingsystemsarenoteligible.

FuelCellsThecreditisequalto30%ofexpenditures,withnomaximumcredit.However,thecreditforfuelcellsiscappedat$1,500per0.5kilowatt(kW)ofcapacity.Eligiblepropertyincludesfuelcellswithaminimumcapacityof0.5kWthathaveanelectricity‐onlygenerationefficiencyof30%orhigher.

SmallWindTurbinesThecreditisequalto30%ofexpenditures,withnomaximumcreditforsmallwindturbinesplacedinserviceafterDecember31,2008.Eligiblesmallwindpropertyincludeswindturbinesupto100kWincapacity.

UNSElectric

Page‐67

GeothermalSystemsThecreditisequalto10%ofexpenditures,withnomaximumcreditlimitstated.Eligiblegeothermalenergypropertyincludesgeothermalheatpumpsandequipmentusedtoproduce,distributeoruseenergyderivedfromageothermaldeposit.Forelectricityproducedbygeothermalpower,equipmentqualifiesonlyupto,butnotincluding,theelectrictransmissionstage.

MicroturbinesThecreditisequalto10%ofexpenditures,withnomaximumcreditlimitstated(explicitly).Thecreditformicroturbinesiscappedat$200perkWofcapacity.Eligiblepropertyincludesmicroturbinesupto2MWincapacitythathaveanelectricity‐onlygenerationefficiencyof26%orhigher.

CombinedHeatandPower(“CHP”)Thecreditisequalto10%ofexpenditures,withnomaximumlimitstated.EligibleCHPpropertygenerallyincludessystemsupto50MWincapacitythatexceed60%energyefficiency,subjecttocertainlimitationsandreductionsforlargesystems.TheefficiencyrequirementdoesnotapplytoCHPsystemsthatusebiomassforatleast90%ofthesystem'senergysource,butthecreditmaybereducedforless‐efficientsystems.

Seehttp://energy.gov/savings/business‐energy‐investment‐tax‐credit‐itcformoredetails.


Page‐68

Impacts of Declining Tax Credits and Technology Installed Costs

Chart11throughChart13shownbelowreflectthenear‐termcapacitypricedeclinesona$/kWbasisfrom2016‐2022associatedwiththereductionintheinstalledcostsofsolartechnologiesrelativetothelevelizedcostrealizedona$/MWhassumingdifferentlevelsofinvestmenttaxcreditsbyyear.ThesolarITCassumptionsarebasedonthefederalinvestmenttaxcreditassumptionsshownonpage66.

Chart11–SolarPVFixed,ImpactsofDecliningTaxCreditsandTechnologyInstalledCosts

Chart12–SolarSAT,ImpactsofDecliningTaxCreditsandTechnologyInstalledCosts

$70

$67

$64

$62$63

$65

$74

$54

$56

$58

$60

$62

$64

$66

$68

$70

$72

$74

$76

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2016 2017 2018 2019 2020 2021 2022

LCOE, $/M

Wh

Installed Cost, $/kW

Solar PV ‐ Fixed Tilt (20 MW)

$/MWh $/KW

$54 $51 $49 $49 $51 $54

$61

‐$4

$6

$16

$26

$36

$46

$56

$66

$76

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2016 2017 2018 2019 2020 2021 2022

LCOE, $/M

Wh


Solar Single Axis Tracking (20 MW)

$/MWh $/KW

UNSElectric

Page‐69

Chart13–SolarThermal,ImpactsofDecliningTaxCreditsandTechnologyInstalledCosts

Impacts of Declining PTC and Technology Installed Costs

Chart14shownbelowreflectsthenear‐termcapacitypricedeclinesona$/kWbasisfrom2016‐2022associatedwiththereductionintheinstalledcostsofwindresourcesrelativetothelevelizedcostrealizedona$/MWhassumingdifferentlevelsofproductiontaxcreditsbyyear.ThewindPTCassumptionsarebasedonthefederalproductiontaxcreditassumptionsshownon65.

Chart14–Wind,ImpactsofDecliningProductionTaxCreditsandTechnologyPriceInstalledCosts

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2016 2017 2018 2019 2020 2021 2022

LCOE, $/M

Wh


Solar Thermal ‐ 6 Hour Storage (100 MW)

$/MWh $/KW

‐$4

$6

$16

$26

$36

$46

$56

$66

$76

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2016 2017 2018 2019 2020 2021 2022

LCOE, $/M

Wh


Wind (50 MW)

$/MWh $/KW


Page‐70

MARKET ASSUMPTIONS

PermianNaturalGas

UNSE’scurrentforwardpriceforecastforPermiannaturalgasstartsat$2.86/MMBtuin2016,andescalatesto$8.93/MMBtuin2035.Chart15‐PermianBasinNaturalGasPricesshowsthe20yearnaturalgaspriceprojectionsinnominaldollars.

Chart15‐PermianBasinNaturalGasPrices

PaloVerde(7x24)MarketPrices

UNSE’scurrentforwardpriceforecastfor7x24PaloVerdewholesalemarketpricesstartsat$28.76/MWhin2016,andescalatesto$87.35/MWhin2035.Chart16‐PaloVerde(7x24)MarketPricesshowsthe20yearwholesalepowerpriceprojectionsinnominaldollars.

Chart16‐PaloVerde(7x24)MarketPrices

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

$/m

mBtu

‐

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

$/M

Wh

UNSElectric

Page‐71

2016 IRP SCENARIOS

Thefollowingsectionprovidesadescriptionofthedifferentscenariostobeanalyzedinthe2017FinalIRPwhichisdueonApril1,2017.Thereareatotalof6scenariosthatwillbepresentedintheIRP.Thescenariosarelistedandgroupedasfollows;

ScenariosRequestedbyDecisionNo.75068(2014IRP)o EnergyStorageCasePlano SmallNuclearReactorsCasePlano ExpandedEnergyEfficiencyCasePlano ExpandedRenewablesCasePlan

AdditionalProposedScenarioso MarketBasedReferenceCasePlano HighLoadGrowthCasePlan

SCENARIOS REQUESTED IN DECISION NO. 75068 (2014 IRP)

EnergyStorageCasePlan

Inthiscase,UNSEwillexplorethepotentialofEnergyStorageSystems(ESS)asameansforsolvingrenewablegenerationintermittencyandvariability.Thecasewillbedesignedtofullymeetrenewableandenergyefficiencystandardsandtotheextentthatpeakingcapacityisrequired,ESSwillbeanalyzedasaresourcetocoverpeakdemandrequirements.ThepotentialandapplicabilityofESSisdescribedinChapter4above.

SmallNuclearReactorsCasePlan

SmallNuclearReactors(SMRs)isatechnologythatcanbeutilizedtolowercarbondioxide(CO2)emissions,aswellasotherpollutants,whileprovidingreliable,sustainedandefficientpoweroutput.Inthiscase,UNSEwillstudytheimpactofSMRsasaresourcetosupplantretiringcoalassets.Thecasewillbedesignedtofullymeetrenewableandenergyefficiencystandards.ThiscasewillalsobecompliantwiththeCleanPowerPlan.

LowLoadGrowthorExpandedEnergyEfficiencyCasePlan

Forpurposesofthisscenario,itisassumedthatUNSErealizesadditionalenergyefficiencyanddistributedgenerationtargets(abovetheEEstandard).Underthisscenario,UNSE’sEEprogramsareexpandedbyprogramdesignand/orbytechnologyefficiencyimprovements.

Chapter7


Page‐72

ExpandedRenewablesCasePlan

UNSEwillpresentthisscenariotostudytheimpactofexpandedrenewabledevelopment.Underthisscenario,UNSEwillincrementallydevelopacommunity‐scalerenewableportfoliothatultimatelyresultsinUNSEserving30%ofitsretailloadby2030(withrenewableresources).Inthisscenario,UNSEanticipatesthatcomplementaryresourceswillbeneededtomaintainreliabilityandtoachieveresponsivenesstotheintermittentandvariablecharacteristicsofsolarandwindresources.Acombinationofdifferenttechnologies(orindividualtechnologies)willbetestedtocomplementtherenewablesassumptions.

AshigherpercentagesofrenewableresourcesareaddedtoUNSE’sresourceportfolio,UNSEanticipatestheneedforfutureinvestmentsintransmission,quick‐startcombustionturbines,energystoragedevicesandsmartgridtechnologiesinordertomaintainreliablegridoperations.Forpurposesofreliability,the2017FinalIRPwillstudytheexpansionofbatterystoragetechnology,reciprocatinginternalcombustionenginesandothertechnologytosupportfutureancillaryservicerequirementsforthegrid.

Additional Proposed Scenarios

MarketBasedReferenceCasePlan

Forpurposesofthe2017FinalIRP,UNSEwillagaindeveloptheMarketBasedReferenceCaseplan.Underthisscenario,itisassumedthatUNSEreliesonthewholesalemarketforlimitedamountsoffirmwholesalepurchasedpoweragreements(PPA)tomeetitsfuturesummerpeakingrequirements.ThisscenarioprovidessomeinsightsintohowUNSE’sresourceportfoliomightlookifthereisadequatesupplyofmerchantresourcecapacitywithintheDesertSouthwestregionoverthelong‐term.Forpurposesofthisscenario,itisassumedthatUNSEdevelopsaportfoliooflongandshort‐termpurchasedpoweragreementstocoveritssummerpeakingrequirements.ItisassumedthatUNSElimitsitsrelianceonfirmmarketcapacitypurchasesto200MWperyear.Allotherassumptionsincludingtransmission,CPPcompliance,andrenewabletechnologyupgradesarethesameastheReferenceCaseplan.

HighLoadGrowthCasePlan

Forpurposesofthe2017FinalIRP,UNSEproposestomodelalowloadgrowthscenariothataffectUNSE’slong‐termexpansionplans.Thisthirdcompanyscenariocontemplatestheincreaseoflargeindustrialcustomerorafacilityshut‐downatanexistingminingcustomerwithinUNSE’sserviceterritory.

UNSElectric

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Fuel, Market and Demand Risk Analysis

Forthe2017FinalIRP,UNSEplanstodevelopedexplicitmarketriskanalyticsforeachcandidateportfoliothroughtheuseofcomputersimulationanalysisusingAuroraXMP15.Specificallyastochasticbaseddispatchsimulationwillbeusedtodevelopaviewonfuturetrendsrelatedtonaturalgasprices,wholesalemarketprices,andretaildemand.Theresultsofthismodelingwillthenbeemployedtoquantifytheriskuncertaintyandevaluatethecostperformanceofeachportfolio.Thistypeofanalysisensuresthattheselectedportfolionotonlyhasthelowestexpectedcost,butisalsorobustenoughtoperformwellagainstawiderangeofpossibleloadandmarketconditions.

AspartoftheCompany’s2017resourceplan,UNSEplanstoconductriskanalysisaroundthefollowingkeyvariables:

NaturalGasPrices

WholesaleMarketPrices

RetailLoadandDemand

AsummaryoftheinputdistributionsareshownforallthesevariablesonChart17throughChart19below:

15AURORAxmpisastochasticbaseddispatchsimulationmodelusedforresourceplanningproductioncostmodeling.AdditionalinformationaboutAURORAxmpcanbefoundathttp://epis.com/

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NATURAL GAS & WHOLESALE MARKET PRICE SENSITIVITY

PermianNaturalGas

Chart17showsboththeexpectedforwardmarketpricesaswellastheexpectedpricedistributionsfornaturalgassourcedfromthePermianBasin.

Chart17‐PermianBasinNaturalGasPriceDistributions

$0.00

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2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

$/m

mBtu

Mean 5th Pct 25th Pct 50th Pct 75th Pct 95th Pct

UNSElectric

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PaloVerde(7x24)MarketPrices

Chart18showsboththeexpectedforwardwholesalemarketpricesaswellastheexpectedpricedistributionsforpowersourcedfromthePaloVerdemarket.

Chart18‐PaloVerde(7x24)MarketPriceDistributions

WhenconsideringChart17andChart18fromabove,itisimportanttonotethatthesummarystatisticsareaggregationsratherthanindividualpricepaths.ForinstancetheP95numberforagivenyearrepresentsthepointwhich95%ofsimulatedvaluesfallbelow.Individualpricepathsmimicrealisticbehaviorbybeingsubjecttotheprice“spikes,”meanreversion,anduneventrendobservedinactualmarkets.

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20.00

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2016 2018 2020 2022 2024 2026 2028 2030 2032 2034

$/M

Wh



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LOAD GROWTH SENSITIVITY

Chart19showsboththeexpectedretailpeakdemandaswellastheexpecteddemanddistributionsforUNSE’sretailcustomers.

Chart19–UNSEPeakRetailDemandDistributions

300

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2016 2018 2020 2022 2024 2026 2028 2030

Peak Retail Deman

d, M

W


UNSElectric

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2016 – 2017 Action Plan

InaccordancewithDecisionNo.75269,this2016PreliminaryIRPintroducesanddiscussestheissuesthatUNSEmayanalyzeindetailforthefinalIRP.UNSEwillcontinuetodevelopafinalIRPinaccordancewiththescheduleoutlinedinDecisionNo.75269.Thescheduleincludesthefollowingmilestones,whichUNSEwillmeet.

File2016PreliminaryIntegratedResourcePlan March1,2016

SubmitPreliminaryIntegratedResourcePlanUpdate October1,2016

Pre‐filingWorkshoponFinalIntegratedResourcePlan November2016

File2017FinalIntegratedResourcePlan April3,2017

ThedecisiontodeferthedeadlineforfilingaFinalIRPwaslargelyduetotheimpactthattheCPPisanticipatedtohaveonresourceplans,andthehighdegreeofuncertainlyaroundhowtheCPPwillbeimplementedinthejurisdictionswheretheregulatedLSEshavefacilities.Asdescribedpreviously,theUSSupremeCourthasissuedastayoftheCPPpendinglitigationintheDCCircuitCourtandincludingpotentialUSSupremeCourtreview.Duringthestay,StatesarenotobligatedtocontinuetoworkonStatePlans,andthedeadlinesforthoseplans,aswellascompliancetimelinesforaffectedunits,willneedtobeadjustediftheruleremainsinplacefollowinglitigation.ArizonaandNewMexicoarecurrentlyevaluatingifandhowtoproceedinlightofthestay.AfinalrulingontheCPPlitigationisnotexpectedpriortoJuneof2017,andmaynotbeissueduntil2018.

The2017FinalIRPwillbeduepriortothecompletionofalloftheStatePlansgoverningCPPimplementation,therefore,UNSEanticipatesthattheFinalIRPwillhavetoaccommodatesomelevelofuncertaintywithregardtoCPPimplementation.Scenariosand/orsensitivitiestoaddressthisuncertaintywillbepresentedintheOctober2016IRPUpdate,totheextenttheyhavebeenidentified.Additionalscenariosand/orsensitivitiesmaybecomenecessarypriortocompletionofthe2017FinalIRP.UNSEwillcontinuetoactivelyparticipateinthedevelopmentoftheseStatePlans,inanattempttogatherasmuchclarityconcerningCPPimplementationaspossible.

UNSEhasdevelopedashort‐termactionplanbasedontheresourcedecisionsthatmustbeimplementedinparallelwithdevelopmentofthe2017FinalIRP.Underthisactionplan,additionaldetailedstudyworkwillbeconductedtovalidatealltechnicalandfinancialassumptionspriortoanyfinalimplementationdecisions.

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UNSE’sactionplanincludesthefollowing:

UNSEplanstocontinuewithitscommunityscalebuildoutofitscurrentrenewableenergystandardimplementationplans.UNSEanticipatesthatanadditional35MWofnewrenewablecapacitywillbein‐servicebytheendof2016raisingthetotaldistributedgenerationandutilityscalecapacityonUNSE’ssystemtoapproximately83MW.Bytheendof2016,renewableresourceswillmakeupcloseto26%ofUNSE’stotalnameplategenerationcapacity.Asaresult,UNSEiscurrentlyinvestingitstimeandresourcesintoanumberofresearchanddevelopmentactivitiesthatwilldeterminethefutureneedforstorageandsmartgridtechnologiestosupportthegrid.UNSEwilllearnfromtheexperiencesofTEPinitsdevelopmentoftwo10MWenergystorageprojectsslatedforinserviceinearly2017(pendingACCapproval).

UNSEwillcontinuetoimplementcost‐effectiveEEprogramsbasedontheArizonaEEStandard.UNSEwillcloselymonitoritsenergyefficiencyprogramimplementationsandadjustitsnear‐termcapacityplansaccordingly.

Aspartofitsnear‐termportfoliostrategy,UNSEwillcontinuetoutilizethewholesalemerchantmarketfortheacquisitionofshort‐termmarketbasedcapacityproducts.Inaddition,UNSEwillcontinuetomonitorthewholesalemarketforotherresourcealternativessuchlong‐termpurchasedpoweragreementsandlowcostplantacquisitions.UNSEwillalsomonitoritsnaturalgashedgingrequirementsasitreducesitsrelianceoncoalbasedgenerationinfavorofnaturalgasresourcesandmakerecommendationsonpotentialfuelhedgingchangesiftheybecomenecessary.

UNSEplanstocommunicateanymajorchangeinitsanticipatedresourceplanwiththeArizonaCorporationCommissionaspartofitsongoingplanningactivities.UNSEhopesthisdialogwillallowtheCommissionanopportunitytohelpshapeUNSE’sfutureresourceportfoliooutcomeswhileprovidingUNSEwithgreaterregulatorycertaintywithregardstofutureresourceinvestmentdecisions.

uns electric, inc. integrated resource plan march 1, … preliminary integrated resource plan march...

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