I. Executive Summary

This Plan constitutes the Least Cost Integrated Resource Plan (“Plan or IRP”) of Washington Electric Cooperative in compliance with the requirements of 30 V.S.A. §218c. That section defines an IRP as:

a plan for meeting the public’s need for energy services, after safety concerns are addressed, at the lowest present value life cycle cost, including environmental and economic costs, through a strategy combining investments and expenditures on energy supply, transmission and distribution capacity, transmission and distribution efficiency, and comprehensive energy efficiency programs.

The Plan is submitted in accordance with the requirements of the orders of the Vermont Public Service Board (PSB or Board) in Docket No. 6896.

Introduction

This Integrated Resource Plan consists of several sections.

Section I (Executive Summary) contains a review of Plan’s purpose, a summary of the analysis conducted in this planning cycle, and IRP conclusions. The current planning context is addressed in greater detail in Section II (Background & Objectives), including WEC’s IRP Objectives, WEC’s Planning Milestones and Guidelines, the methodology behind this IRP and how it addresses the requirements coming out of the 2003 IRP Board Order in Docket 6896. In Section III, the Washington Electric Cooperative (“WEC”, or the “Co-op”) system is described, together with an evaluation of WEC’s projected load and committed resources. The electricity industry, the regional ISO-NE generation and transmission system, Vermont’s transmission system and WEC’s distribution system are addressed as a companion to this section, in Appendices A & B respectively, while Appendix C provides details on WEC’s 20-year load forecast.

The analytical framework for identifying a least-cost resource mix is described in Section IV Scenario Analysis. This section provides a description of the alternative planning scenarios WEC may face over the twenty-year planning horizon, and how those scenarios could affect WEC resource portfolios in terms of forecast loads, market energy and capacity prices, the effect of coming carbon regulations, the monetization of environmental and emissions impacts and the forecast prices for renewable energy attributes accompanying WEC’s predominantly renewable mix. Section V covering WEC Resource Portfolios introduces the six supply and demand-side resource portfolios selected for evaluation in this study. Section VI presents the results of the scenario based portfolio analysis, with a comparison of the performance of the portfolios across the various planning scenarios based on attributes appropriate for WEC. Portfolio attributes were analyzed to determine whether WEC’s strategy to meet its going forward requirements with DSM and renewable resources met the objectives of WEC management, its Board of Directors and its Members. A summary of key observations from the IRP analysis concludes this section. Finally, Section VII, Conclusions & Action Plan, summarizes the plan’s conclusions and the timeline for WEC’s implementation of IRP findings.

The following discussion describes the more significant findings and conclusions reflected in each section of the Plan. Note carefully that the Plan is really a working document, and this version concentrates specifically on WEC’s upcoming short-to-intermediate-term power supply and resource decisions. It addresses many of these issues using sophisticated quantitative analyses and models, but others are addressed with less extensive analysis or discussion primarily.

Background & Objectives

WEC is under continuous pressure to keep its Members’ rates as low as possible. One of the largest portions of WEC’s cost of service is represented by its power supply portfolio.

The Federal Energy Regulatory Commission (FERC) has required the adoption of new policies and pricing in the ISO-New England (ISO-NE) wholesale market that favor siting generation close to the load it serves. Federal and state tax changes including incentives promoting renewable power, together with recently-instituted renewable portfolio standards (RPS) in five New England states, have increased the value of renewable generation. Renewable generation has been recognized for a number of years as an effective hedge to the price volatility associated with the fossil fuels used to generate most wholesale electricity in the northeast. Developing societal attitudes and governmental actions suggest renewable resources could serve as an equally effective hedge against the impact on market energy prices of coming emissions regulations.

In light of its operating environment in Vermont and in the New England wholesale electricity market, and the preferences of its Members, WEC managers determined and the Co-op Board voted in 2001 that in addition to maintaining and growing a safe and reliable distribution system, the Co-op should pursue several key objectives in its generation planning:

ü Minimize power supply-related revenue requirements,

ü Reduce power supply risks and cost variance, and

ü Promote long-term financial stability.

In its prior (2003) IRP and since then, these principles have guided WEC’s planning and operations.

In the 2003 IRP, a renewable generation path was charted, after being found to meet the foregoing planning objectives. The 2003 IRP focused specifically on the likely net benefits to WEC’s supply portfolio of developing the Coventry Landfill-Gas-to-Energy (LFG) project. Since that time, the northeast wholesale generation markets within which WEC operates have changed dramatically, becoming more volatile and higher-priced and in a number of ways, more complex. However, also during that time WEC has successfully brought on line and expanded its Coventry plant. The low cost baseload power produced by that renewable resource^{^[1]} has served WEC very well in these ever-evolving power markets, confirming renewable generation resources could successfully meet WEC’s planning objectives.

WEC has not had an increase in its rates since 2000, a remarkable achievement when considering the fact that wholesale power prices have more than doubled since then. The renewables-based power supply portfolio developed by WEC shortly thereafter has been largely responsible for WEC’s stable rates.

In recognition of the environment within which WEC finds itself now and the path that was charted towards a renewable supply portfolio since the beginning of the decade, the overall direction of this IRP is guided by the very same generation planning principles.

WEC sees the IRP strategic planning process as a pathfinding exercise. Note that some of the analyses have changed since the 2003 IRP to more comprehensively address decision-making within the context of the foregoing planning principles. In the current planning process, WEC has developed a multiple scenario approach, under various fuel and growth forecast assumptions, and then tested portfolio performance under those scenarios to confirm that the path it is on and the direction in which it is heading is optimal for achieving its preset planning objectives.

Public Service Board Docket 6896

In its Order in the Co-op’s previous IRP, the Public Service Board (PSB) directed that the following elements be included in this 2007 IRP:

(A) In its next IRP, WEC will describe how its resource portfolio decision-making process identifies, evaluates and incorporates opportunities for strategic peak load management, demand response programs, direct load control programs, rate designs based on marginal cost, and other non-energy efficiency resources besides supply.

This IRP addresses some, but not all of these items. Specifically, the array of demand-side management (DSM) resources is studied collectively, based on portfolios mimicking the various levels of peak load, demand response and other energy efficiency programs as sponsored by the state’s efficiency utility, Efficiency Vermont (EVT). Included herein for study are a number of portfolios assuming the same EVT-type mix of the above types of programs, or enhanced levels of such activity based on a WEC-sponsored program which will be introduced herein, entitled the Pledge Service.

Separately and outside of this IRP, WEC will file in early 2008 for PSB approval for a new Rate Design. That filing will seek approval for WEC’s proposal for the development of retail rates based on marginal production costs and an inclining block structure to enhance the foregoing DSM efforts.

(B) WEC will continue to provide residential energy efficiency programs, and will continue to provide retrofit electric energy efficiency services to its members. WEC will continue to monitor the efficacy of strategic peak load management and consider the ability to design rates that are pegged to hourly clearing prices. WEC will continue to offer ISONE Demand Response Programs to its members/customers pursuant to Docket No. 6555.

(C) WEC's members/customers are 97% residential, and … this affects the availability and efficacy of load management opportunities. However, WEC remains committed to providing its members with high quality, affordable, least-cost energy services through a full range of potential DSM resources to reduce its long-term power costs.

(E) WEC is committed to monitor and evaluate residential and small commercial demand response programs implemented elsewhere for possible deployment in its service area if, and when, such programs, initiatives, and market intervention strategies appear to represent viable and cost-effective DSM resource investments. WEC recognizes that strategic load management investments addressing a variety of member consumption pattern and end-uses may represent attractive investment opportunities to reduce future power costs.

At the time of the Board’s Order in Docket 6896, Efficiency Vermont then in its fourth year of operation. EVT established and has been recognized nationally for its accomplishments under the Vermont Energy Efficiency Utility model including in WEC’s service territory. So, there has been a foundation laid for measurement of some of these programs operating together as a portfolio of DSM programs.

Nevertheless, in the meantime WEC has continued to take seriously its responsibilities pursuant to the Board’s Docket 6896 Order.

In response, and in partnership with Efficiency Vermont, WEC has developed the Pledge Service, scheduled to be rolled out beginning in 2008. It is expected to result in many of the measures noted in the Board’s Order, and in the same proportions as are being rolled out by EVT statewide; in fact that is how Pledge is modeled in the resource portfolios studied herein. Of course, Pledge Service impacts will be monitored carefully to ensure these assumptions hold and that it is an otherwise economic addition to WEC’s resource mix generally.

With respect to additional, future opportunities of the sort specified in the Board’s Docket 6896 Order, WEC is currently a party to PSB Docket 7307, Smart Metering and Advanced Metering Infrastructure (AMI). Along with other Vermont utilities WEC believes that there are benefits which may accrue with an appropriate advanced metering infrastructure embedded within the WEC distribution system, insofar as proven economic. No specific programs which rely upon such AMI were modeled in this IRP, however.

Finally, as already discussed, WEC is planning on implementing an inclining block rate design structure soon in this IRP cycle, and though not modeled herein as a separate resource, it does utilize marginal price information reflecting assumptions about ISO-NE locational marginal prices (LMPs) specific to the Vermont zone.

(D) When WEC screens and evaluates potential DSM resources for cost-effectiveness it will do so utilizing then-currently available state-wide avoided costs. In determining real time avoided costs for assessing strategic peak load management opportunities, WEC will utilize locational marginal pricing information as provided by the ISO-NE.

The Pledge Service measures have been screened utilizing the current DPS approved state-wide avoided cost, and the current Technical Resource Manual (TRM).

However, all economic analysis performed in this IRP by La Capra Associates is based on recent ISO-NE market price forecasts driven by fuel forecasts provided by the Energy Information Administration and assumptions utilized in La Capra Associates’ Northeast Market Model (its PROSYM-based production costing platform). WEC does not believe that these differing economic assumptions will lead to missed DSM opportunities however.

WEC’s proposed rate design will be based on marginal costs of on-peak production reflecting forward price estimates of Vermont Zone ISO-NE LMPs.

Load Forecast

WEC developed a projection of its electricity demand for the 20 year planning period. Reference, high and low forecasts were developed for each customer class, total system energy, purchase requirements and for winter and summer peaks. The reference growth in total system purchase requirements and annual peak is expected to be about 1.3% annually, not accounting for recent planned Efficiency Vermont (EVT) or WEC-sponsored demand side management programs such as the Pledge Service. This reference case forecast of load growth is not much changed since the last IRP.

Charts showing the total system energy and annual peak projections are shown below.

Figure 1: Purchase Requirement Projections

Figure 2: Projection of Annual System Peak (Winter)

Committed Supply Resources

WEC has developed and procured a diverse and ample supply of energy resources since the 2003 IRP. WEC has been successful in filling the supply gap left by the termination of its Vermont Yankee contract in early 2002 and, going forward is prepared for the loss of its McNeil entitlement this year, and the VEPPI production phaseout and the termination of its Hydro Quebec contract in the next decade.

WEC has successfully developed, and subsequently has expanded, the Coventry Landfill Gas (LFG) project. The Coventry LFG project provides WEC with a low cost and stably-priced power source meeting its baseload requirements and then some. WEC expects to develop a 5th engine at Coventry which will be online by 2009, further increasing the contribution from this power source.

Looking forward into the planning period, WEC’s contract with Hydro Quebec will expire in October, 2015. To partially fill this gap in the supply portfolio, WEC has a commitment with UPC Wind for between 2 and 4 MW from the Sheffield wind project. It is anticipated that the UPC project will be online in or before 2013. WEC’s expected supply position along with reference load are shown in the following chart.

Figure 3: WEC Projected Energy Position

Note: UPC modeled as available in 2013; actual in-service date should be earlier.

Long Power Supply Position Going Forward

As the above graphic reveals, since 2003 WEC has secured long-term fixed price renewable resources (primarily Coventry Project LFG generation) to meet its energy requirements for the majority of the current 20-year planning period. Its resource portfolios as modeled herein all reflect that WEC enters this current IRP cycle already long on energy resources for the first eight years, and that additional renewable supplies and Pledge Service investments WEC could make it even longer for the second half of the planning horizon. The nearer-term long position of committed resources going into this planning cycle makes WEC unique among Vermont utilities, most all of which are exposed to not only the termination of the present Vermont Joint Owners Hydro Quebec contract as WEC is, but also the nearer term potential loss of Vermont Yankee in 2012 if the plant is not relicensed.

WEC understands from this IRP exercise that it will need to balance the apparent financial benefit of procuring additional renewable and DSM resources with the market risk accompanying a long energy position. Strategies which include bilateral offtake contracts for some of its long energy position are discussed herein and in the Action Plan.

Energy Efficiency and the WEC Pledge Service

In conjunction with Efficiency Vermont, the Coop has developed the Pledge Service, an enhanced, residential member-focused initiative which is being piloted in 2008. Some of the portfolios studied herein model this DSM resource directly, and using the estimates developed in this Plan for energy savings, the Pledge Service could add to the long energy position WEC is expected to realize.

The Pledge Service is designed to leverage existing EVT electric efficiency measures and mechanisms. The enhancements relate to WEC’s addition of financial incentives beyond those provided by EVT program participation, with an incentive paid to participating Members who achieve explicit energy reduction goals set by the Members themselves (i.e., “payment for performance”).

The graph below of forecast summer peak demand provides four reference load forecast trajectories. “Reference load- Embedded DSM” is based on La Capra Associates analysis of existing WEC and EVT energy efficiency measure savings already in place for some time, where WEC historical loads, which drove its reference case load forecast, already reflect some modest amounts of embedded DSM. This is the expected trajectory absent any other intensified DSM or other actions to curtail load, and the escalation rate is approximately 1.3% over the planning horizon (see load forecast section and Appendix C for more detail).

The second line “Reference load-EVT” was provided by Grimason Associates. It represents a possible future in which WEC’s reference load trajectory is altered downwards based on recent EVT statewide DSM impacts ultimately becoming more concentrated and focused in WEC’s service territory.

The third line “Reference load-Pledge level 1” is based on EVT historic energy savings claims for WEC Members. Using EVT savings data, an annual average energy savings estimate for WEC members was calculated assuming the Pledge impacts both add to and mimic those achieved by EVT. This cumulative savings estimate was used in the IRP study as an on-going annual energy reduction associated with the Pledge Service.

The fourth line “Reference load-Pledge level 2” assumes double the energy reductions estimated for Reference load-Pledge level 1.

Figure 4: Reference Load Growth Summer Peak Forecast

Portfolios Examined by WEC in this Integrated Resource Plan

Six resource portfolios were selected for evaluation in this IRP; three base case portfolios, which assume a constant “Pledge level 1”, and three sensitivity portfolios, which assume a doubled level of Pledge savings compared to “Pledge level 1”. The three basic portfolios for each Pledge level include one with Pledge alone, one with Pledge plus 2 MW of additional landfill gas (LFG) energy and one with Pledge plus 2 MW of new wind project output. This approach allowed WEC to separately and individually analyze the basic and enhanced Pledge impacts, as well as those associated with new LFG and wind resources.

The portfolios are summarized in the following table.

Table 1: WEC Portfolios Considered in this IRP

	Additional Resources
	Pledge	Landfill Gas	Wind
Base Portfolios
Pledge level 1	level 1	None	None
Pledge level 1 Plus Additional LFG	level 1	2 MW online by 2013	None
Pledge level 1 Plus Additional Wind	level 1	None	2 MW online by 2013

Sensitivity Portfolios
Pledge level 2	level 2	None	None
Pledge level 2 Plus Additional LFG	level 2	2 MW online by 2013	None
Pledge level 2 Plus Additional Wind	level 2	None	2 MW online by 2013

All six portfolios were modeled as incremental additions to WEC’s committed resource mix. They assume as a constant in all cases the same committed resources, including the 5th engine at Coventry and 4 MW of UPC wind online by 2013 as discussed in the Supply Resources Section. This allowed WEC to measure the impacts of the incremental resource additions individually and combined.

The following graphic portrays WEC’s projected energy balance with both the committed, and the potential incremental resource additions that were selectively studied herein. It also indicates the extent to which WEC might end up long on energy if any or all of the incremental resources were actually developed according to the estimates. It is important to note that the energy output of 2 MW of wind turbine capacity is about one third the amount produced by 2 MW of capacity fueled by landfill gas.

Figure 5: WEC Projected Energy Balance (2008-2026)

Note: The energy output from 2 MW of wind is about one third that from 2 MW of landfill gas.

Plan Scenario Analysis

The WEC scenario analysis determines the effect of reference, high and low load conditions for WEC and ISO-NE, together with reference, low and high fuel prices (which drive wholesale market electricity prices). These scenarios cover a broad range of likely future conditions affecting the costs and cost volatility of WEC’s power supply portfolio.

Each scenario reflects a different view of future trends concerning the following factors, which are important to the supply of and demand for WEC electricity:

1. Fuel prices;

2. Load growth in WEC and ISO-NE generally; and

3. Resulting wholesale spot market electricity prices.

The scenarios are based on a twenty-year horizon, consistent with planning timeframe of the Twenty Year Electric Plan of the Vermont Department of Public Service (DPS) and other related IRP requirements.

Results of the Plan Portfolio Analysis

WEC performed several types of analyses to test the robustness of the above portfolios. First, it analyzed which portfolios were expected to be the most economic in serving WEC on a long-term basis. This analysis was performed for the period 2007-2026, and measured the 20-year present value of revenue requirements (NPVRR) of each incremental portfolio under each scenario. For this metric, positive values of cost increase revenue requirements and negative values indicate that the portfolio lowers revenue requirements, and is thus beneficial. Second, WEC evaluated the expected long-term incremental portfolio cost variance under a reference case and two extreme case scenarios. Finally, the expected externalities associated with each portfolio under each scenario were measured.

These measures incorporate portfolio characteristics essential to WEC, including resource costs and risk of significant cost variation under differing market conditions, as well as the percent of renewable energy added.^{^[2]} The performance of each of the six portfolios was evaluated based on these measures in order to assess how each portfolio would perform under a variety of economic and market conditions.

The results for the reference case scenario, for each of the three base portfolios, are displayed in the following table, also referred to herein as a “Scorecard.” A detailed description of the metrics in the Scorecard is provided in Section VI-A.

Table 2: Base Portfolios, Reference Case Scenario Scorecard

Reference Market Price Scenario	Base Portfolios
20-year NPV ($'000) (2007-2026)	Pledge 1 only	Pledge 1 plus more LFG	Pledge 1 plus more Wind
Financial Attributes
Total Portfolio Cost (w/o Societal Cost)	$1,067	$320	$1,450

Total Externality Cost (emissions)	($118)	($233)	($156)

Total Portfolio Cost (w Societal Cost)	$949	$87	$1,293

Difference Versus Pledge Only		($862)	$344


NPV REC Cost (Benefit)	$0	($2,373)	($791)
Total Portfolio Cost (w/Societal Cost & RECs)	$949	($2,286)	$502

Difference Versus Pledge Only		($3,235)	($447)


Risk Attributes
Average Short Term Volatility	13%	22%	16%
Total Position	115%	128%	120%
Average Value of Long Position	$1,011	$1,839	$1,008
New Green Energy - %	0%	9%	3%

Note: Negative cost values denote incremental projected benefits to WEC, positive values denote projected incremental costs.

Because WEC is comfortably hedged with existing supply side resource commitments already, there is no immediate need for quick decisions to be made within the framework of incremental portfolio options. This is one key difference between this integrated resource planning cycle and the previous one in 2003 when the development of the Coventry LFG Project was being considered.

With that said, there are significant revelations from the current analysis. The primary finding herein is that because WEC has already secured numerous long term resources and contracts for its supply needs, additional supply resources increase WEC’s long resource energy position as already discussed by 15-28% on average, potentially more so in certain years.

The second important finding is that WEC’s long position creates both opportunities and risks. There are opportunities for economic gain in the management of the resource portfolio, including potentially profitable net resales of energy or renewable energy credits (RECs) back to either the spot market or in customized long-term bilateral offtake agreements. All of this creates opportunities for economic gain in resource acquisition and management, but the risks are real as well. Care must be taken to ensure the excess energy position is developed with incremental resources whose cost does not exceed incremental resales revenue back to WEC.

Securing energy from fixed cost resources, such as hydroelectric, landfill gas and other fixed price resources, along with their associated RECs in some cases, has proven to be a valuable component of the stabilization of WEC’s retail rates, which as already noted have not increased since 2000. The current portfolio analysis projects that new LFG and Wind power generation can provide a net gain to WEC, thus lowering its generation costs, though in the case of wind generation the market value of the RECs created must be realized through a resale in order for wind to be proven to be cost effective. With the sale of their respective RECs, additional LFG and wind could provide a significant benefit, reducing the overall generation services costs of WEC by from $0.5 - $3.2 million over the planning horizon if excess sales were made into the spot markets for these resources. This is a key third finding from this IRP analysis.

However, with these long portfolios considered together with normal spot market short term volatilities, WEC can expect to encounter fluctuations around its net revenue projections in the order of between $200,000 to $1 million (NPV) from year to year. This represents from 4% - 20% of its current annual generation budget and is based on the assumption that spot market resales are relied upon. This key fourth finding suggests WEC must carefully trade off the potential economic benefit of surplus resources with the potential ‘regret’ of increased exposure to market volatility and, potentially, uneconomic outcomes.

A related finding suggests that WEC manage the risk of changes in market value of surplus sales by limiting its long energy position. WEC’s experience with significant short energy positions earlier this decade suggests that WEC’s long energy position should not exceed approximately 130% for a significant period of time, unless savings from the resources creating that long energy position are significantly under-market and can be locked in through stably-priced, bilateral offtake agreements to control budget variability.

WEC’s management challenge is maintaining a plan supporting stability of rates into the future. Currently, WEC is shielded from short term market volatility as a result of the nature of the existing portfolio of resources, some of which like Coventry have costs which are below-market and which generate RECs which can be resold to lower costs further. This IRP exercise has confirmed that the same requirements exist going forward, especially since WEC could be considerably long under a combination of new renewable resources and enhanced energy efficiency.

All of the foregoing observations suggest WEC should pursue opportunities for the acquisition of cost-effective supply or demand management resources only after analyzing the impact of its exposure to market price volatility, both short-term if a spot resales strategy is implemented, and over the long-term under other bilateral offtake strategies.

Among all future resource options, WEC has the most direct control over the impacts of its Pledge Service. It is imperative that WEC plans to deploy the Pledge Service consider its incremental economics, and in ways that manage rather than drastically curtail load growth, in order to mitigate its impact on WEC’s power cost budget and retail rates.

Distribution System Planning

WEC has undertaken significant planning relating to its distribution delivery system, and has performed studies relating to system capacity, efficiency and reliability. These include the Long Range Plan (2004), and its 2002 Electrical Distribution Study. WEC relies on Vermont Electric Power Company (VELCO) and Green Mountain Power (GMP) to conduct studies of the state’s bulk transmission system and the subtransmission system that feeds WEC.

In this Plan, distribution system investments are assumed to be made where economic, just like any other supply or demand side investment. Avoided costs for energy efficiency and distribution system planning are provided in the Scenario market price forecasts to guide that analysis, and as already discussed the DPS maintains statewide avoided costs and the TRM screening tool to assist in screening distribution system investments.

Implementation of WEC IRP Results

WEC intends to implement the conclusions described above through an action plan that focuses on strategic acquisition of additional renewable resources, rolling out the Pledge Service and other measures considered outside of this IRP such as its proposed marginal cost based, inclining block rate design.

Table 3: Timeline for WEC Resource Portfolio Management Activities

Timeline for WEC Resource Portfolio Management Activities
2008	§ Monitor Coventry Project’s 5th engine installation costs as basis for determining whether to pursue additional LFG opportunities. § Continue discussions with LFG and Wind and perhaps other renewable project developers offering economic and stably-priced long-term contracts. § Refine WEC’s RECs policy further with regards to portfolio renewable content, and monitor the RECs market carefully, developing periodic price projections for long term REC resale revenues. § Continue current portfolio management and hedging activities, and begin to develop customized long-term offtake contracts for excess supply. § Evaluate results of Pledge Service pilot, and roll out inclining block rate design. § Set 3 year targets for Pledge Service activity. § Develop 10 year average price of electricity projections and related retail rate impacts, including of the Pledge Service, as a means to control WEC’s demand for energy and capacity alongside retail rates.
2008-09	§ Develop the 5th Engine at Coventry, § Optimize portfolio. Acquire additional cost-effective resources as needed to replace McNeil and plan for VEPPI attrition and HQ contract expiry in the next decade, while developing policies and contracts related to management of WEC’s long energy position.
2009-15	§ Continue portfolio optimization and refine resales strategies. § Target new resources, particularly renewables and dispatchable ones, to replace McNeil and eventually Hydro Quebec Schedule B. § Annually revisit the 3 year targets for the Pledge Service. § Develop and refine future IRPs.

WEC will continue to enhance its planning processes, in the following manner:

First, WEC intends to implement the present IRP analysis by (1) refinement of the scenario planning process and the associated inputs and impacts, (2) revising the choices and cost outcomes associated with additional portfolio additions and adjustments as they become available, and (3) further developing and integrating WEC’s risk management (e.g. hedging program) and related policies into an ongoing management process. Towards that end, WEC will be refining its analytical tools to incorporate probabilistic methods and procedures that can enhance resource and managerial decision-making.

The Plan and the underlying analytical tools used in its development will be adapted for use over shorter-term planning horizons so that WEC can nimbly respond to additional resource opportunities. Again, probabilistic methods and procedures will enable responsible decision-making on options that present themselves and must be acted upon rapidly.

Through its participation in the e-23 generation planning group, the Smart Metering and AMI docket, and the Vermont System Planning Committee (VSPC), WEC will seek to improve the integration of generation, load measurement and response, and distribution planning and energy efficiency improvements into the portfolio optimization process. This Plan does not focus heavily upon such activities, but future IRPs may ultimately reflect the fruits of such efforts. Though this Plan does not propose specific and complex distribution system expansion or energy efficiency programs, WEC has carefully developed avoided cost estimates across broad-ranging scenarios in order to allow such planning to proceed in the short-to-intermediate term, and has the benefits of access to the DPS-sponsored ones as well.

In conclusion, the Plan reflects an important step in WEC’s strategic planning, this one utilizing a scenario-based approach to study the performance of various resource portfolios under WEC’s preferred and time-tested renewables-based strategy, plus enhanced DSM. Its purpose is to help find and confirm as optimal, a path for undertaking future resource development activities. WEC intends to continue to determine the optimal resource path as it manages its revenue requirements and risks to its Members, and improve its financial health, through a variety of policies and resource development options.

II. Background and Objectives

A. Objectives of the IRP Process

There are many stakeholders involved in the electric utility world. In most large power systems, the three major groups of stakeholders are the customers, owners and regulators. In the case of an electric cooperative such as WEC, the three major stakeholders are the Members, regulators[3] and management. The Integrated Resource Planning (IRP) process provides information to these groups to support resource management decisions necessary to manage the cost and reliability of the WEC system.

IRP has been referred to as Least Cost Integrated Planning. However it is much more. IRP is a strategic planning tool that provides WEC stakeholders information on the costs, risks and other impacts of resource portfolio choices. IRP is a combination of situational analysis, numerical analysis, risk analysis and the exercise of judgment. WEC managers utilizes the IRP to evaluate, based on preset resource planning principles, different supply resource options alongside alternatives that reduce Members’ consumption. In addition, the IRP helps inform WEC’s regulators as to its preferred resource plans for the future and the rational for following a particular strategy.

In summary, for WEC, IRP is a pathfinding exercise, where a course is set based on how well various resource options and plans are projected to perform in any number of future market environments, and on how well such plans satisfy WEC stakeholders.

A1. Long-Term Portfolio Preferences

WEC continues to have its supply planning guided by the March, 2001 principles established by WEC management. WEC’s Power and Operations Committee then recommended, and the full Board of Directors adopted the following concerning long-term resource additions: (including replacement supply for the then-pending termination of WEC’s Vermont Yankee contract):

Based on the analysis thus far, the Power and Operations Committee has developed some strategies and parameters which they are recommending that the Board adopt at this time. This will instruct the Co-op staff, La Capra Associates and others we may work with in actually procuring future power supply.

RECOMMENDATION:

In procuring future power supply, Washington Electric Co-op adopts the following preferences and strategies:

1. WEC will use its ability to obtain low-cost, long term financing of up to 25 years to make investments in new renewable energy projects that can supply us with output at a reasonable cost.

2. WEC will explore the viability of local landfill gas projects.

3. WEC will explore the availability of power from in-state hydro facilities, including the viability of ownership of such facilities.

4. WEC expresses a preference for procuring power supply from facilities that are “close to home,” both as a means of avoiding potential transmission costs, as well as to provide additional economic benefit to our communities and state.

This action represented a key milestone in WEC portfolio planning, and set WEC on the course it follows today, wherein Vermont-based renewables are being pursued as desirable options for future supply portfolio additions.

A2. Decision-Making Risk Tolerances and Preferences

Other WEC policies regarding risk tolerances and preferences have been developed over the years since 2001. WEC has asked La Capra Associates to present short-term (e.g. hedge forward purchases and sales) and long-term resource decisions in a number of ways. Perhaps the most important of these concerns the presentation of (particularly financial) outcomes associated with key decisions. This is because, being a relatively small, largely residential, low-density public power system, with proportionally large fixed costs, WEC can not afford to gamble on outcomes that could present widely disparate financial consequences. Acknowledging this, WEC emphasizes retail rate stability and prefers courses of action which would not necessitate frequent retail rate increases or adjustments. To aid in WEC decision-making, La Capra Associates presents alternatives upon which a decision must be made in terms of the following key decision framework:

MINIMAX: The course of action likely to minimize the maximum financial regrets.

Given a choice, and assuming all else is equal, WEC prefers actions for which the projected worst-case outcomes are lowest among competing alternatives. This preference reflects WEC risk aversion and management’s commitment to retail rate stability.

B. WEC Portfolio Planning and IRP

WEC’s last IRP was filed in 2003 and approved in 2005. During the period since the Board’s approval of the 2003 IRP, WEC’s focus has moved from planning to implementation of the IRP findings then and now, such as identifying short-term needs and executing related transactions (e.g. forward energy hedge purchases or sales, ICAP purchases, contracting for new wind capacity and developing additional landfill gas capacity). The objective has been to establish near-term balance and a longer-term, cost-effective resource surplus to help reduce and stabilize WEC’s retail rates and prepare for committed resource attrition beginning this year with the McNeil contract expiry and continuing into the next decade with the loss of the VEPPI and HQ resources.

WEC continuously monitors ISO-NE market developments such as standard market design issues, Vermont-specific resource and regulatory developments (e.g. PSB approval of the UPC Wind project, the potential relicensing of Vermont Yankee and contract extensions with the Vermont utilities, renewable portfolio standards (RPS) legislation, etc.), and the performance of its own units such as the Coventry LFG Project.

As stated earlier, WEC considers this Plan to be a working document that portrays its current outlook and focuses on addressing its upcoming resource attrition requirements in an economic fashion. However, the forecasting exercises, analyses and tools used herein are deployed regularly by WEC throughout each annual planning and budgeting cycle to meet its least cost supply obligations.

B1. Milestones in the WEC Portfolio Planning Process

Since 2000 WEC has engaged La Capra Associates to support the management of its resource portfolio and power supply procurement and agreements.

Starting about then, WEC became particularly interested in renewable resources, and directed La Capra Associates to study the long-term costs and cost variance projected with LFG and wind renewable resources alongside particularly natural gas-fired market energy options and spot market pricing available through ISO-NE.

La Capra Associates completed such analyses by 2001. As a consequence of those findings, WEC’s Board of Directors adopted a strategy to procure a combination of LFG and other renewable energy at a projected cost competitive with combined cycle unit purchases or system power contracts, so long as:

§ A long-term, stably-priced contract could be put in place between WEC and the renewable projects; with

§ If possible, WEC could take an ownership position and commit a large percentage of low-cost debt capital towards development of the more capital-intensive renewable projects.

The study also showed that, depending on the resource, the possible sale by WEC of the following could help to bring the net cost of renewables in line with other, prevailing non-renewable market alternatives (such as NGCCs or block forward energy):

ú Accompanying renewable attributes (e.g., NEPOOL GIS Renewable Energy Certificates RECs).

ú Monetized income tax credits (if made available for public systems in federal legislation) and other federal renewables incentives.

This direction proved to be the right one for WEC. Between 2003 and 2005 WEC developed and brought online the 4.8 MW Coventry LFG project, at a cost substantially under prevailing market energy and capacity prices, which had more than doubled since earlier in the decade.

In the last three years WEC has added to its supply resource portfolio with the addition of a fourth engine at the Coventry Landfill Gas project. This expansion has been successful in maintaining high utilization rates and has proven to be an economic addition to the WEC portfolio. WEC has committed to adding a fifth engine (1.6 MW) at Coventry. This expansion is expected to be online in 2009, contingent upon the necessary financing and the requisite PSB Certificate of Public Good being received by then. In addition WEC has committed to up to a 4 MW purchase from the UPC Sheffield Wind Project. This project is anticipated to be in service no later than 2013.

This 2007 WEC Integrated Resource Plan uses an attribute screening and ranking methodology, and portfolio analysis, to evaluate new options for DSM under WEC’s Pledge Service, and additional LFG and Wind energy beyond that which is already committed with the Coventry and UPC Wind projects.

C. Methodology of IRP

The 2007 IRP can be described as a Scenario Planning exercise. WEC and La Capra Associates have chosen to conduct this IRP by analyzing resource options performance in terms of cost, risk and environmental impact. This IRP compares the resources under different plausible futures for the energy marketplace, referred to as scenarios. The process involved starting with a clear understanding of the key WEC planning objectives as well as the factors believed to be important in determining the value of various resource choices.

The next step is to fully develop the parameters that compose the scenarios. Each scenario results in a market outlook for energy, capacity and renewable energy credit prices. Resources are evaluated under these scenarios in terms of multiple attributes that track their costs, risks and environmental impacts.

A careful comparison of the portfolio attributes across scenarios will result in a strategic direction, a path, to follow in its resource acquisition and portfolio management activities in the coming years.

C1. Scenario versus Probability Analysis

There are at least two major methods that management can use to evaluate the impact of various resource strategies, probabilistic decision analysis and scenario analysis.

Decision analysis is sometimes referred to as uncertainty analysis. In decision analysis, probability distributions are developed for various input assumptions, whether they are assumptions on costs of resources, performance of resources, fuel prices, economic activity, demand growth, technology evolution or many more. These probability distributions for each input assumption cover the full range of the possible values of each assumption, shaped by judgments about the future. In some cases the probabilities associated with various assumptions are interlinked. In other cases, assumptions have probabilities of outcome that are independent of the other inputs. Decision analysis compares the attributes of the various resources by utilizing a cumulative probabilistic profile of potential outcomes to understand the risks and the probability of one strategy outperforming others.

Scenario analysis, which can incorporate some of the simulation features of decision analysis, is a methodology where decision makers get information on the performance of resource options by comparing them under various futures for the market environment that WEC could experience, but without ascribing specific probabilities to those outcomes. In scenario analysis, different outlooks are explored that more naturally involve plausible combinations of the values of each of the key input assumptions. Usually three or four scenarios are constructed that offer a broad range of outcomes for key decision variables, although not necessarily the most extreme and without necessarily ascribing probabilities of occurrence. Decisions are made by management after examining the performance of the different options across all scenarios, along key dimensions referred to herein as attributes. The portfolios and options performing the best across the broad range of scenarios for the future are the preferred options.

Each of these methodologies is used in strategic planning, investment evaluations, project planning and operations planning analyses. Neither technique is considered the consensus superior methodology, and as discussed, they can be combined in various ways.

La Capra Associates determined in the present pathfinding exercise that scenario analysis was more suitable for WEC in the 2007 IRP. First, WEC is evaluating options whose costs are more market driven than driven by construction, equipment or development costs. By this we mean that the costs to WEC of options such as additional renewables are based on a contract negotiation and market prices for energy, capacity and renewable energy credits. This makes the cost and performance of resource options more variable, more amorphous than in other analyses. Second, unlike in its 2003 IRP, there are no specific project commitments under study in the present analysis for WEC.

The IRP in 2007 will guide resource planning acquisition activities for WEC over the next several years. However, specific new resources can and will be evaluated utilizing probabilistic decision analysis.

C2. Comparison to 2003 IRP

In the 2003 IRP analysis, WEC and La Capra Associates utilized probabilistic decision analysis to study the impacts on its resource portfolio of a specific resource option which it was pursuing at the same time, the Coventry LFG project. In that analysis, extreme cases for fuel prices and demand growth were analyzed and a distribution of possible outcomes relating the economic value of Coventry to WEC constructed. The main question being addressed in the 2003 IRP was the value of the project to WEC over the planning horizon. The chosen portfolio with the Coventry Project was projected to have an expected value that was in virtually all market price outcomes positive or “economic,” supporting the decision to proceed with the development of the project. A case was made that pursuit of the Coventry Project was not only projected to be economic under conservative assumptions, but would minimize the maximum regrets WEC could have experienced had it otherwise decided not to pursue the project and remained supplied to a large degree by the ISO-NE spot market.

The 2007 IRP utilized a scenario-based approach as discussed above. In the 2007 IRP analysis, La Capra Associates and WEC evaluated the performance of several portfolios of resources consisting supply and demand side options in isolation or in combination. The performance indicators or attributes studied reflected costs, economics, risks and environmental impacts. These portfolios were evaluated under three scenarios of the future for market conditions in Vermont, New England and the Northeast region. These scenarios, viewed as being equally plausible, are specifically not assigned probabilities of occurrence. The scenarios are described at length later in this document.

Decisions about resource options to pursue in the future are supported by how well such options score among the attributes chosen for study across all scenarios, which helps identify dominant resource options or portfolios or whether attribute tradeoffs must be made between the options.

D. Public Service Board Docket 6896

In its Order in the Co-op’s previous IRP, the Public Service Board (PSB) directed that the following elements be included in this 2007 IRP:

Separately and outside of this IRP, WEC will file in early 2008 a new Rate Design proposal. That filing will address WEC’s proposal for the use of rates based on marginal production costs, and an inclining block design to enhance the foregoing DSM efforts.

At the time of the Board’s Order in Docket 6896, Efficiency Vermont was only under development, and it was still primarily the individual Vermont utilities’ responsibility to implement the foregoing types of programs. Since then, EVT was established and has been conducting a number of the foregoing activities across the state, including in WEC’s service territory. So, there has been a foundation laid for measurement of some of these programs operating together as a portfolio of DSM programs.

Nevertheless, in the meantime WEC has continued to take seriously its responsibilities pursuant to the Board’s Docket 6896 Order.

The Pledge Service measures have been screened utilizing the current DPS approved state-wide avoided cost, and the current Technical Resource Manual (TRM).

However, all economic analysis performed in this IRP by La Capra Associates is based on recent ISO-NE market price forecasts driven by fuel forecasts provided by the Energy Information Administration and assumptions utilized in La Capra Associates’ Northeast Market Model (its PROSYM-based production costing platform). WEC does not believe that these differing economic assumptions will lead to missed DSM opportunities however.

WEC’s proposed rate design will be based on marginal costs of on-peak production reflecting forward price estimates of ISO-NE LMPs for the Vermont Zone.

III. DESCRIPTION of the Washington Electric Cooperative system

A. overview

Washington Electric Cooperative, Inc. (WEC) is a member-owned rural electric company established in 1939. Its approximately 10,338 Members are spread over 41 towns and 4 counties (Caledonia, Orange, Orleans and Washington) in north-central Vermont. The customer breakdown is as follows:

Table 4: WEC Customer Distribution by Class

Customer Class	Avg 2007 Members	% of Total
Residential (incl. Seasonal)	10,058	97.3%
Small Commercial	268	2.6%
Large Power	12	0.1%
Total	10,338	100%

The figure below portrays WEC’s service territory in relation to state boundaries.

Figure 6: WEC’s Service Territory

Appendix A provides a discussion of the important developments in the electric industry generally and the regional New England generation and transmission system, both of which set the context for WEC’s markets and position within those markets.

Appendix B provides a discussion of the Vermont transmission system and more information on WEC’s distribution system and planning.

B. WEC Demand for Electricity

B1. Retail Sales

From a kWh sales perspective, WEC's retail sales are overwhelmingly residential (& seasonal residential), about 90%. WEC also has some small commercial and large power (though not necessarily “industrial”) sales making up most of the rest, about 5% of the total for each.

Figure 7: WEC Retail Sales 2007

Source: La Capra Associates

WEC's retail sales have grown by about 1.9% (compound average) since 1995. However, that growth masks significant year-to-year swings of from -1.2% to 6.3% per year.

Customer growth (from additional new members) has been responsible for most of the increase in WEC sales. For instance, since 1995 growth in residential plus seasonal customers has averaged close to 1.6% per year. WEC's usage per customer has declined from 1990 to 2002, but has increased since 2002. WEC’s average monthly usage per residential/seasonal customer was 560 kWh in 1990, 500 KWh in 2002 and 520 kWh in 2006. The general trend downwards in kWh/month/customer in the 1990s reflected the slowdown in the Vermont economy, and the longer-term success of the Co-op’s earlier demand side management programs, plus new federal energy efficiency standards.

Figure 8: WEC Average Monthly Usage per Residential/Seasonal Customer

Source: WEC & La Capra Associates

B2. WEC Power Requirements Projections

During the fall of 2007, La Capra Associates developed for WEC a twenty-year projection of electricity usage for general planning purposes and as part of this Plan. Appendix C provides the load forecast, entitled Washington Electric Cooperative 2007 Load Forecast: 2007-2026.

WEC’s 2007 projection is comprised of individual forecasts for each major customer class. These classes are: residential plus seasonal, small commercial and large power; in addition, forecasts were prepared of total retail energy sales, total system energy requirements and system peak demand. The estimated growth rate of 1.3% per year for system energy requirements and system peak demand embed historic energy efficiency savings, both by WEC’s own programs and those of EVT.^{^[4]}

La Capra Associates (La Capra) prepared separate 3-year univariate (i.e. time series) and 20-year multivariate (i.e. econometric) forecasts of WEC class energy sales, system energy requirements and purchases, and non-coincident peak demand. Theses forecasts were blended, with a heavier weighting on the 3-year univariate forecasts in the first few years, and reliance upon the multivariate forecasts after that, so that by years 4-20 the multivariate forecast growth rates were used to project load.

The following table presents a summary of historical and expected annual average growth rates over the next 20 years for total purchase requirements, system peak demand, total sales, and sales for the three major retail classes. Reference case projections are lower than the last ten years or so in all cases except peak demand and large power sales, primarily because of the cumulative effect of embedded DSM, particularly over the last few years.

Table 5: Historic and Forecast Loads

	2007 (Projected) Load	1995-2006 Annual Growth	2007 to 2026 Annual Growth
	2007 (Projected) Load	1995-2006 Annual Growth	Reference	Low	High
Total System Purchase Requirements (net of Wrightsville generation)	75,119 MWh	1.86%	1.29%	0.06%	2.22%
Peak Demand	16.6 MW	1.30%	1.27%	0.06%	2.15%
Total Retail Sales	70,047 MWh	1.90%	1.26%	-0.09%	2.03%
Residential + Seasonal	63,137 MWh	1.88%	1.16%	-0.17%	2.16%
Small Commercial	3,384 MWh	2.13%	2.08%	1.58%	2.44%
Large Power	3,526 MWh	2.08%	2.65%	2.01%	3.34%

Source: La Capra Associates Load Forecast

WEC anticipates that it will be a winter-peaking utility for at least the next five years and likely throughout the planning horizon. Summertime average peak in 2007 was 12.3 MW, or 3.9 MW less than the 16.4 MW peak set earlier this winter.

Figure 9: Purchase Requirements Projections

Figure 10: Projection of Annual System Peak (Winter)

B3. Energy Efficiency

Efficiency Vermont

Vermont’s statewide “efficiency utility,” Efficiency Vermont, represents a unique and innovative system for delivering programmed demand side management services. It is increasingly involved in the retrofit market as well. Its current annual budget is approximately $30 million and serves all customers in the state. EVT has begun to use a certain amount of its budget and concentrate its program activity on a targeted basis to areas where demand reductions or slowed growth in demand is economically desirable.

While the Co-op continues to provide retrofit efficiency services for all eligible members, it also acts as a subcontractor to Efficiency Vermont to deliver the Vermont Energy Star Homes (VESH) program to
Co-op members.

Together with EVT, WEC efficiency and other demand side management efforts have begun to alter the trajectory of WEC’s long-term load growth as the table above indicates for WEC’s reference
case outlook.

C. WEC Supply Resources

C1. Current Resource Mix

As shown in the following table and graphic, WEC’s current sources of power are primarily renewable and fairly well diversified, reflecting landfill gas, hydroelectric, biomass and a small amount of system power (reflecting GMP source mix). WEC has made a strategic decision over the years to reduce the use of fossil fuels and nuclear generation, while increasing the use of renewables. It should be noted that WEC does not retain the renewable energy credits (RECs) associated with its renewable resources, so WEC cannot take direct credit for their environmental benefits. WEC does retain the benefits of resources with a cost structure that does not vary with fossil fuel prices. The breakdown of the fuels used to generate electricity in 2007 and projected for 2008 are as follows:

Table 6: WEC Electric Resources by Fuel Type – 2007

WEC Fuel Sources	Percent of Mix
Landfill Gas	58%
Hydro	39%
Biomass	2%
System Power	1%

Figure 11: WEC Current Supply Resource Mix Forecast 2008

Source: La Capra Associates

Because of WEC’s low reliance on fossil fuel-fired generation, its rates are not as vulnerable to the volatility of the cost of natural gas and oil as for other New England utilities with regional system supply exposure. WEC compares particularly well to those in other states where generation divestiture has forced load-serving entities to rely on spot and block-forward purchases, or generation from primarily natural gas-fired generators, for up to 100% of total supply. For those utilities that supply such default generation service in the other New England states, frequent rate increases, and less occasionally decreases (1-2 times per year, typically), have been a fact of life for the last several years.

Nevertheless, the management of power supply costs within the budget of a small system is a primary challenge for WEC. WEC continues to further develop its formal hedging program, while increasing and diversifying the percentage of renewable power in its mix, and looking at ways to cost-effectively manage a developing excess energy position.

C2. Existing WEC Commitments over the 20-Year Planning Horizon

WEC’s committed supply portfolio contains the following resource mix.

Table 7: Committed WEC Supply Portfolio

Contract or Unit Entitlement	Capacity (MW)	Approximate Annual Energy (MWh)	Termination	Notes
Coventry	6.4	47,500	2038	Increases to 8 MW in 2009
Wrightsville (Hydro)	0.7	2,600	?	Internal generation
NYPA (Hydro)	1.5	8,400	?
VEPPI (Hydro, Biomass)	0.8	4,500	Phases out 2011 to 2020
GMP Rate W (System)	0.07	500	?	Supplies 1 circuit
Hydro Quebec Sch B (Hydro)	2.6	17,000	2015
UPC Wind (as yet not online)	4 MW Nameplate	11,500	2029-2031	Capacity Value equal to 0.4 MW
Net Spot Sales (System)	0 – 3	4,000 – 20,000

Source: La Capra Associates

Wrightsville Hydro is a ponded facility at the Wrightsville Reservoir. Its rated capacity is a little over 700 kW. Annual energy production is dependent on rainfall, but in most years at least 2,500 MWh can be produced. The average cost of Wrightsville Hydro in 2006 was about $17.30/MWh. This facility has some seasonal dispatchable capability, which may not have been exploited by WEC to maximum advantage historically. WEC will be evaluating its potential with other planned dispatchable supply options in the coming years. In any case, this unit represents a relatively small contribution to WEC’s resource mix.

WEC is a suballotee of NYPA federal preference power from the Niagara and St. Lawrence projects in western New York. WEC receives 1.5 MW of capacity and approximately 8,700 MWh of energy annually. Power from the NYPA facilities is one of WEC’s lowest cost sources, at a 2007 average cost of $32.15/MWh.

WEC purchases approximately 400 kW of mandatory Qualifying Facility (QF) power from 20 generation plants independently owned and operated by small power producers in Vermont, under the PSB Rule 4.100 program, which implemented the purchasing requirements of the federal Public Utility Regulatory Policies Act of 1978 (PURPA). Must-take VEPPI hydro and biomass power is one of WEC’s highest cost sources, at a 2007 average cost of $139.00/MWh. VEPPI production starts to phase out at the beginning of the next decade.

A small amount of GMP Rate W wholesale requirements system power (569 MWh in 2007) supplies the Jones Brook circuit (77 customers) from a direct feed (“meter point”) from GMP’s 34.5 kV subtransmission system.

Under the HQ - Vermont Joint Owner (HQVJO) contract, WEC elected to receive a 2.6 MW block of firm power from HQ under Schedule B, beginning in late 1995 and continuing through most of 2015. HQ and the VJO have exercised all call options likely to be exercised under the contract, so energy is provided at the annual average capacity factor of 75% for the remainder of the contract. The deliveries of energy can be shaped to increase in on-peak and seasonal periods, so this is one of WEC’s (partially) dispatchable sources. WEC receives the bulk of its Schedule B power through the Highgate Converter and related transmission facilities. The capacity cost of power under Schedule B is basically fixed for the 20-year contract period, at roughly $250 per kW-year. The base price for energy is $17.74 per MWh (1985$) and is subject to annual changes equal to the Gross National Product Implicit Price Deflator. The energy price is currently about $28 per MWh, and the average all-in cost of HQ-B is about $68.00-$70.00/MWh.

Through a power sales agreement with VPPSA, WEC purchases a .986 MW share of VPPSA's ownership in the J.C. McNeil Generating Station in Burlington, Vermont. This contract with VPPSA expires at the end of May of this year. This resource is not listed in Table 7 (above) since the contract has effectively expired.

In order to replace a number of expired and soon to expire resources WEC has been actively pursuing other power supply options. These options include an expansion of 1.6 MW at the Coventry Landfill Gas generating unit, which is currently rated at 6.4 MW, and an agreement with UPC Wind for a share of the output of the Sheffield wind project. The Coventry resource is currently producing approximately 47,000 MWh/year. An additional internal combustion engine is planned for 2009 which would increase the total capacity to 8 MW and energy to approximately 59,500 MWh annually. Coventry is WEC’s largest and one of its lowest cost sources of power. The 2007 average all-in cost for the existing 6 MW is approximately $45/MWh including debt and depreciation. The committed UPC wind agreement is for from 2-4 MW of the project’s output should the facility ultimately be developed, and if 4 MW is taken the total cost is expected to be approximately $69.00/MWh or less.

The balance of WEC’s energy requirements are met by ISO-NE spot market purchases or sales made automatically, currently under the Central Dispatch Agreement with VPPSA. These purchases are made at a price roughly equivalent to Vermont Zonal LMP during off-peak hours, which reflects off-peak wholesale market prices in New England plus congestion and losses associated with supply to the Vermont Zone. Since the last IRP WEC has purchased from the spot market for anywhere between 10 % and 30% of its annual energy needs; since the Coventry began operating WEC has mostly been long on energy.

As a result of the resources that WEC has in its committed mix, WEC is projected to be balanced to moderately long over the short to medium term. The figure below shows WEC’s projected energy position under the reference case scenario.

Figure 12: WEC’s Projected Energy Position

Note: UPC modeled as on line in 2013; actual in-service date should be earlier.

IV. ScENARIO ANALYSIS

A. The Scenarios

A scenario can be thought of as a description of a set of future conditions. The IRP scenarios developed herein take the form of separate forecasts of resulting market energy, capacity and renewable energy credit (REC) prices, based on influences such as regional supply and demand conditions, WEC load conditions and fossil-fuel prices.

Scenarios used to evaluate alternative resource portfolios should be broad enough to assess portfolio flexibility and robustness. At the same time, the scenarios must be specific enough to allow identification of the important financial and other measures of portfolio fitness.

Three scenarios have been developed for WEC’s IRP.

The primary assumptions that describe and differentiate the scenarios examined by WEC are fuel prices, regional electric demand, and environmental regulations. The scenarios suggest three potentially equally plausible futures for market prices in New England.

A1. Differentiation by Fuel Prices Primarily

The Market Price Scenarios used to test options and portfolios herein are differentiated by fuel prices, regional and WEC-specific load growth, and environmental regulations and markets. The primary differentiation is reflected in the outlook for fuel prices, particularly natural gas, which sets the regional marginal market clearing price for electricity.

The “High Market Price” scenario would be characterized by supply tightness, particularly of natural gas, which would continue to push global and North American energy prices higher at a faster rate than currently expected.

The second scenario, containing a more moderate price path, is referred to as the “Reference Market Price” scenario. In the Reference Market Price scenario, the estimates for future electric market prices, and underlying natural gas and oil prices, are close to the current forward curves for those commodities with moderate escalation as assumed by the EIA.

The third scenario is characterized by a global market in which the North American growth in energy demand is matched by supply development that provides relief from a strained supply moderating somewhat current gas and oil prices. This produces a “Low Market Price” scenario.

A2. Characteristics of the Scenarios

The Key Characteristics for the Scenarios are presented in the following table:

Table 8: Scenario Characteristics

Scenario Characteristics
Ø	Reference Market Price ú Current moderate fuel price trends ú Moderate Load Growth, Strong Economy ú Moderate Enhancements to Environmental Regulations ú Slow growth in DSM, Federal RPS but slow implementation
Ø	High Market Price ú High Fuel Prices Trends ú Low Load Growth ú High DSM, Strong Renewables Growth ú Stronger Environmental Regulation
Ø	Low Market Price ú Robust Load and Economic Growth ú Moderation in Fuel Prices, lowest fuel price scenario ú Modest DSM funding levels and RPS targets ú Limited Evolution in Environmental Regulation

B. Fuel Price Outlooks Used in Scenarios

The basis for the fuel price forecasts derives from two sources. The 2007 Annual Energy Outlook (“AEO”) prepared and published by the Energy Information Administration provides the escalation rates for the long-term market price cases.[5] The AEO Reference Natural Gas Case, High Natural Gas Case, and Low Natural Gas Case forecasts were used for the “Reference Market Price”, “High Market Price”, and “Low Market Price” scenarios, respectively. The first several years of the forecast have a similar decending price shape because the forecasts in that period are driven primarily by natural gas futures prices on the New York Mercantile Exchange (“NYMEX”), representing a forecast based on market expectations of the future for natural gas prices.

The following graph portrays the fuel price forecasts used in the various scenarios.

Figure 13: Natural Gas Price Outlooks (Nominal $)

CAGR 2008-2032

High: 3.2%

Base: 2.2%

Low : 1.5%

C. WEC & ISO-NE Loads Used in Scenarios

A major driver of New England electric prices is the outlook for regional electric demand, which is based on the forecast of demand prepared by ISO New England and published in the 2006 CELT Report.[6]