Draft Base Case Assumptions for Economic Models
HAA-RGGI FY2007

The following list of assumptions will be used in the Study of Economic and Energy Impacts of RGGI Participation conducted by the University of Maryland (UMD) for the Maryland Department of the Environment (MDE). These will be utilized for several models: two market models -- Resources for the Future's (RFF) HAIKU Model and Johns Hopkins University's (JHU) Oligopolistic Power Market Model -- and Towson University's (TU) economic welfare model, IMPLAN.

We appreciate the comments provided by stakeholders on the earlier draft assumptions by the 9:00am September 25, 2006 deadline. All comments have been documented. These will be summarized in the final report and utilized where appropriate in the other parts of the study (e.g., lists of alternative scenarios recommended for future study, description of other considerations and limitations, etc). Additional opportunities for input on the study are described in the stakeholder process section.

Updated September 29, 2006

Competitiveness Assumptions

• HAIKU is a perfect competition model and JHU can simulate either perfect or imperfect competition.
• The JHU model can be nested within HAIKU model, taking HAIKU capacities as boundary conditions.  The JHU model represents four transmission constrained zones within Maryland . 

Time frame

• The economic simulation will consist of the following years: 2010, 2015, 2020, 2025.
• There will be three seasons (for the RFF and JHU models only):
  • Summer (May-September)
  • Spring/Fall (October, November, April, March)
  • Winter (December, January, February)

Fuel Prices

• Prices for fossil fuels (including international oil) and nuclear power will come from the Annual Energy Outlook (AEO) 2006 estimates.
• Prices for renewables will use the AEO 2006 as a starting point, National Labs data will supplement for certain fuels (e.g., biomass and wind).

Regions

• Relative to costs, there are two types of regions to be considered: regulated or market-based with
  • Regulated (average cost-based)
  • Market-based (marginal cost-based for wholesale, average of marginal costs for generation for customer distribution costs).
• The following regions will be modeled as part of RGGI:
  • Current RGGI States: ME, VT, CT, NH, NY, NJ, DE
  • Anticipated RGGI States: MA, RI (to be included in the study)
• Haiku model is national model; JHU model is PJM-based (PA, NJ, MD market).

• Federal Environmental Policies:
  • Include the Clean Air Interstate Rule (CAIR) and Clean Air Mercury Rule (CAMR) policies in the baseline and the Title IV cap on SO2 emissions outside the CAIR region.
• Federal Renewables Policies:
  • The primary federal policy to encourage use of renewables to generate electricity is the Renewable Electricity Production Tax Credit (REPC).
  • This policy currently provides for a 1.9 cent per kWh tax credit for qualified renewables for the first 10 years of operation with the credit escalating over time to account for inflation (2005 $). Uncertainty in REPC will be taken into account by applying appropriate discount factors.
• Maryland Environmental Policies (Maryland Healthy Air Act):
  • Plant-specific emissions restrictions on NOx, SO2 and Mercury provided by MDE
  • Intra-firm trading of emissions for NOx and SO2 only.
  • Maryland firms may sell unused CAIR (NOx) and Title IV (SO2) allowances out of state.
• State Renewable Portfolio Standards to Force Renewables to Be Built:
  • For outside of Maryland, use NEMS AEO 2006, renewable portfolio figures.
  • For Maryland, use Exeter Associates and Princeton Energy Resources International report (“Inventory of Renewable Energy Resources Eligible for the Maryland Renewable Energy Portfolio Standard”).
• Maryland Renewable Tax Credit will be represented.

• Default is to take 25% of allowance value and apply it to public benefits, unless stated otherwise by State policy (e.g., Vermont 100%). It is assumed that all of the funds will go to energy efficiency efforts unless stated otherwise by State policy.
• The remaining 75% is given away according to historic output at the generating unit based on a previous year’s data.
• The default RGGI formulas will be used for completeness.
• Emissions will be counted only from electric power generation for sale to the market. CO2 emissions associated with electricity for own use (customer side of the meter) will not be counted.
• The study will not model industrial facilities that generate their own power.

• Use AEO 2006 values unless specific rates for Maryland are available.

• Use only planned and approved transmission capacity investments through 2010.
• Beyond 2010, assume a conservative (i.e., a few percentage points) growth in transmission capacity; this rate will be determined from appropriate sources (e.g., AEO). Additionally, consider transmission investments which have yet to be approved but are in the planning stages and have a relatively high chance of completion.

• Imports from Canada will be exogenously determined.

• National policy of no caps on greenhouse gas emissions assumed to remain in effect.
• CO2 Emissions caps: caps will reflect emissions from grid-connected sources.
• CO2 Allowance Price Caps and Offsets: will follow the model rule.