Since 1998, EES has developed three methods for estimating marginal energy prices for use in energy efficiency standards rulemakings. These methods are based on extensive and ongoing analysis of data on the range and distribution of marginal energy prices around the country. The methods are:

1. Regressions of Household Utility Bill Data
2. Hourly Utility Marginal Costs
3. Tariff-Based Bill Calculator

Regression analysis is used for residential products and has additional benefit when product usage is seasonal (e.g, air conditioners or furnaces). Good examples of methods 2 and 3 are different product categories of distribution transformers. Hourly Utility Marginal Costs are calculated for the economic analysis of liquid-immersed transformers, which are predominantly owned by utilities that have marginal costs that can vary by the hour. The Tariff-Based Bill Calculator, a monthly analysis, is used for evaluating dry-type transformers, which are typically owned by commercial and industrial (C&I) establishments that see monthly electricity bills.

Method 1: Regressions of Household Utility Bill Data

Regressions on actual consumer utility bills provide estimates of the marginal prices of electricity and natural gas specific to residential sector products. This method was used in the LCC analyses for energy efficiency standards for the following products whose Final Rules were issued in 2000 and 2001:

• residential central air conditioners and heat pumps
• residential clothes washers
• residential water heaters

The analysis for these three residential sector products originally used consumer bills from EIA's RECS 1993 database. That analysis was subsequently updated when the RECS 1997 database was released. EES derived seasonal (summer and non-summer) marginal electricity prices and annual marginal natural gas prices by calculating the slope of the regression lines associated with monthly bill and consumption data.

EES also examined prices of residential heating oil and propane. Because bills paid by residential consumers for these fuels are based almost wholly on the volume purchased, quoted prices are essentially marginal prices.

For a summary of the results of the analyses to derive residential marginal prices for these products, see the original report [PDF] prepared by LBNL and the memo [PDF] describing the update based on RECS 1997 data for the residential sector.

This method was also used in the LCC analysis [PDF] for the Advance Notice of Proposed Rulemaking (ANOPR) stage of the ongoing rulemaking for residential furnaces and boilers. There, the method was applied to electricity and natural gas fuel. For oil-fired furnaces and boilers and for liquefied petroleum gas (LPG)-fired equipment, EES used average prices since the data necessary for estimating marginal prices were not available.

Method 2: Hourly Utility Marginal Costs

For liquid-immersed transformers, hourly utility marginal electricity costs are calculated. Marginal electricity costs are the costs experienced by utilities for the last kilowatt-hour (kWh) of electricity produced. A utility's marginal cost can be higher or lower than its average price, depending on the relationships between capacity, generation, transmission, and distribution costs. The general structure of the hourly marginal cost equation divides the costs of the electricity into capacity components and energy cost components. The capacity components include generation capacity, transmission capacity, and distribution capacity. Capacity components also include a reserve margin needed to ensure system reliability. Energy cost components include a marginal cost of supply that varies by the hour, factors that account for losses, and cost recovery of associated marginal expenses. EES applied the following equation to calculate the marginal cost of supply of electricity to cover transformer losses.

MEC = (1 + CM) * (GC * IGC + TC * ITC + DC * IDC) + (LAF * EC(hour) + RF) * IEU(hour)

where:

• MEC = marginal electricity cost,
• CM = system capacity margin required for reliability,
• GC = unit cost of generation capacity,
• IGC = incremental system capacity required by the load,
• TC = unit cost of transmission capacity,
• ITC = incremental transmission capacity required by the load,
• DC = unit cost of (non-transformer) distribution capacity,
• IDC = incremental distribution capacity required by the load,
• LAF = system loss factor, which is one plus the estimated system losses,
• EC(hour) = hourly cost of electrical energy, either from a market or from fuel and operating cost data,
• RF = additional cost recovery factor, and
• IEU(hour) = incremental energy use.

This hourly marginal cost equation is presented in detail in the LCC chapter [PDF] of the ANOPR stage Technical Support Document (TSD) for the distribution transformers rulemaking. Method 2 was also used in a portion of the LCC analyses [PDF] for the ANOPR stage of the current rulemaking for commercial unitary air conditioners and heat pumps.

Method 3: Tariff-Based Bill Calculator (Monthly Analysis)

EES used the tariff-based bill calculator (i.e., the monthly analysis) for the evaluation of dry-type transformers, which are typically owned by commercial and industrial (C&I) establishments that see monthly electricity bills. For the transformers project, this type of analysis estimates the impacts of transformer loads and the resultant transformer losses on the monthly electricity usage, demand, and electricity bills of C&I customers. This method is also presented in detail in the LCC chapter [PDF] of the ANOPR stage TSD for the distribution transformers rulemaking. A brief overview of the tariff-based analysis of electricity prices follows.

First, EES developed a representative sample of utilities and collected the tariffs from those utilities and modeled them. Then EES created a Tariff Data Model (TDM). To capture the complexity that occurs in many tariffs, the TDM divides each tariff into a collection of components. Using the component format, EES was able to reconstruct the structure of any tariff from the set of components, and then apply the customer data to determine whether conditions are met for a particular rate. EES used the calendar month as the billing period. For each building, EES used the peak demand and total energy consumption data from EIA's Commercial Building Energy Consumption Survey (CBECS) 1995 for 12 calendar months. EES kept the customer on the same tariff for both the base and the standards cases. EES input the TDM and the individual customer data into a Bill Calculator (BC), which is a set of accounting programs implemented as functions in an Excel spreadsheet. These functions produce monthly bills for a customer, to which EES added the distribution transformer losses for both the base and the standards cases. The difference between the annual bills for each standard level gave the associated operating cost savings. EES calculated the customer marginal demand and energy prices as the net change in the total bill, divided by the net change in demand or energy, respectively. EES's spreadsheet calculates monthly bills for January and July for the chosen building, along with marginal rates and a breakdown of the bill into fixed, demand, and energy charges. The full information on the tariff is also displayed on the page. The BC spreadsheet can be obtained at EES's tariffs website.

Method 3 was also used in portions of the LCC analyses [PDF] for the ANOPR stage of the current rulemaking for commercial unitary air conditioners and heat pumps.

An earlier bill-calculator-based analysis [PDF] for the commercial sector was used in the fluorescent lamp ballast standards analysis published in 2000. For that rulemaking, this method centered on the calculation of electricity bills for a distribution of sample buildings in conjunction with a distribution of commercial tariffs. Jackson Associates' Market Analysis and Information System (MAISY®) database provided the source of information for the building energy and demand levels among buildings of different types. Commercial tariffs from a sample of utilities were collected and modeled. (The sample of utilities at that time was smaller than the sample used later for the distribution transformers and commercial unitary air conditioners and heat pumps rulemakings analyses.) EES considered each customer/building in turn, selecting the applicable tariffs (based on that building's peak annual demand). Then, for each such tariff, EES calculated a monthly bill. EES made a second calculation with the same month, tariff, and building, but decremented the monthly energy use and peak demand to obtain a representative change in the building's bill (to calculate the marginal energy price). The assumed energy use decrement is 5%; the demand decrement is 80% of 5%, i.e., 4%. Then EES computed the monthly marginal price by dividing the difference between the two bills by the difference between the two energy consumption levels.