The Public Utility Commission (PUC) provides this report in accordance with Health ... The Transmission and Distribution
Control Number: 26310
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EMISSION REDUCTION INCENTIVE GRANTS REPORT TO TCEQ
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$2,.”
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INTRODUCTION
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‘c The Public Utility Commission (PUC) provides this report in accordance with Health and SafG?
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Code 0 386.205 Evaluation of State Energy Efficiency Programs and PUC Subst. Rule $25.1835
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Reporting and Evaluation of Energy Efficiency Program. This report summarizes results of the *’ calendar year 2005 energy-efficiency programs implemented under the Public Utility Regulatory Act, Section 039.905.’ The energy savings and estimates of the air emission reductions submitted in this report are based on projects implemented in 2005 and achieved through the PUC regulated energyefficiency program adopted pursuant to 1999 legislation (SB7)and subsequent 2001 legislation
(SB5). The 1999 legislation introduced retail competition in the sale of electricity and directed the PUC to establish energy-efficiency programs to meet a specific demand-reduction goal. Although the 1999 legislated demand reduction goal was not explicitly adopted to reduce air emissions the energy savings achieved through the energy-efficiency program also provide corresponding reductions in air emissions within non-attainment areas. The 2001 legislation required quantifying the energy savings from energy-efficiency projects and the corresponding emission reductions, and our estimate of the savings are provided in this report. The table below provides a summary of achievements from projects implemented during calendar year 2005. The Transmission and Distribution Utilities (TDUs), which are responsible for implementing the energy-efficiency program, exceeded their demand reduction goals by 27 percent and saved nearly 500,000 megawatt-hours of energy.
The utilities’ program
expenditures of $78 million in 2005 will provide customers a total energy cost savings of $290 million over the ten-year project life of the efficiency measures. The programs also resulted in a reduction in NO, emissions of 89 tons on an annual basis and 0.2tons for an ozone-season day. Attachment A to this report lists the estimated emissions reductions resulting from the energyefficiency program by county.
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Public Utility Regulatory Act, TEx UTE. CODEANN939.905 (Vernon 1998 & Supp. 2005) (PURA) 1
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Summary Expenditures $78,929,907
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2005 Energy Efficiency Program
Customer Energy Cost Savings
Demand Savings
Energy Savings
(MW)
(MW)
initial year - 2005
$53 million
ten-year project life
$290 million achievement
goal
142’17 180.75
496,890
BACKGROUND The PUC’s energy-efficiency programs are a broad series of measures designed to reduce electric demand and energy consumption. Reductions in energy consumption result in reduced electric production that contributes to lower emissions in non-attainment areas and affected counties. Areas are designated as non-attainment by the Environmental Protection Agency (EPA) when they do not meet the national air quality standards for particular pollutants.
In compliance with the Clean Air Act the Texas Commission on Environmental Quality (TCEQ) has developed State Implementation Plans (SIPS)to address the Texas counties that do not meet EPA’s national ambient air quality standards specifically for ozone. Although the energyefficiency programs will result in the reduction of emissions of NO,, sulfur-dioxide and carbondioxide, the focus of this report is the NO, emissions reductions. The emissions reductions reported in Attachment A are based on energy savings from the energy-efficiency programs that the PUC oversees under PURA.
To estimate of NO, emissions reductions resulting from the energy-efficiency program the PUC relied on EGRID, a national database of air emissions that is maintained by the EPA, to link energy savings to emissions reductions. The Energy Systems Laboratory at Texas A&M University (ESL) utilized EGRID in combination with the utilities’ reported savings to estimate the annual and peak ozone day NO, emissions reductions. The programs are developed to achieve energy savings during the peak period of electrical consumption, May through September, but some of the measures also result in savings outside of the peak period.
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This report also includes an assessment of the utilities’ efforts to meet the demand reduction mandate; the associated cost incurred to achieve the reported savings; and the value of the energy saved. One requirement for energy-efficiency projects implemented by the TDUs is that the measures must have a ten-year life. Thus, in comparing costs and benefits, the energy cost savings for both the initial year of the installed measure and the ten-year project life of the measures are reported. Finally the savings to the customer are determined, based on the cost of the energy saved due to the reduction in energy consumption. In other words, the value of the avoided use of energy that results from implementation of the energy-efficiency improvements has direct monetary savings for ratepayers.
REGULATORY FRAMEWORK To meet the statutory requirements of PURA
0 39.905 Goal for Energy Efficiency and Health
and Safety Code 0 386.205 Evaluation of State Energy Efficiency Programs, the PUC adopted Substantive Rules 25.181,25.183, and 25.184. Substantive Rule 25.181 governs the implementation of the energy-efficiency program and requires in part, that TDUs acquire energy-efficiency savings equal to at least 10 percent of their growth in demand. Utilities may acquire these savings through the administration of standard offer programs and targeted market transformation programs. Substantive Rule 25.183 requires that the utilities report their program results, and Substantive Rule 25.184 contains various details for the operation of the program: allowable project templates, forms and deemed savings estimates. The PUC maintains an Energy Efficiency Implementation Docket to assist in implementing the Energy Efficiency Goal and serve as a forum for discussion of changes to the allowable standard offer and market transformation programs, deemed savings, incentive levels and the measurement and verification protocols.
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EGRID AIR EMISSIONS DATABASE The EPA’s Office of Atmospheric Programs Global Programs Division developed the model used to estimate the air emissions reductions from the programs, relying on the fact that the Texas electric grid (ERCOT) is a closed system. This means that for the most part all electricity on the ERCOT grid is both generated and consumed in Texas. Outside of ERCOT, the electric companies in Texas
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El Paso Electric, Southwestern Public Service, Entergy and AEP’s 3
SWEPCO - import and export electricity across state boundaries. To calculate emissions reductions in ERCOT, emission factors were used, based on the assumption that production from a set of ERCOT power plants would be reduced when energy consumption was reduced. This methodology relies on the EPA’s EGRID database and incorporates measured power plant emission rates, historical relationships between the areas in which power is produced and the areas in which it is consumed, and the operating characteristics of the power plants in the region. It reflects, for example, assumptions that coal and nuclear power plants do not change their operation as a consequence of reductions in energy consumption.
In other words, the
methodology assumes that gas-fired plants are the marginal units that respond to changes in energy consumption. The emissions reductions provided in Attachment A are based on savings that the utilities reported for calendar year 2005. The methodology for quantifying the emissions reductions was developed through a collaborative process among the PUC, the Environmental Protection Agency’s Climate Protection Partnership Division, TCEQ, and ESL. ESL performed the actual calculations to estimate the emissions reductions utilizing information provided by the PUC and the EPA’s 2007 version of the EGRID database.
DEMAND REDUCTION GOAL(MW) The demand reduction goals are based on an average of the peak demand for the five years preceding the goal year. Thus calendar year 2005 demand reduction goals were established in 2004 under project number 30739. The TDUs reported their 2005 program results in project number 32107. During 2005 the utilities cumulatively exceeded their demand savings goals by 27 percent. The TDU’s combined projected growth in demand for calendar year 2005 was 1,048 MW and the projected demand reduction was 142 MW, which reflected projected savings of 12 percent of the anticipated growth in demand. The actual demand savings of 180.76 MW were 27 percent higher than the projected savings of 142 MW.
1,048.05
142.17
129.00
180.75
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ENERGY SAVINGS ACHIEVED(MWh) AND PROGRAM EXPENDITURES As a complement to the demand savings, which are measured in megawatts (MW), the energyefficiency program resulted in energy savings measured in megawatt hours (MWh). These quantified energy savings are necessary in order to calculate the estimated emission reductions achieved through the energy-efficiency programs and are provided to the TCEQ for possible SIP credit. Cumulatively the utilities achieved total energy savings of 496,891 MWh in addition to 180.76 MW of demand savings during calendar year 2005. The utilities spent a total of $78,929,907 for energy-efficiency measures implemented during calendar year 2005. Incentives were paid to Energy Efficiency Service Companies (ESCOs) following their installation of energy-efficiency measures and provision of any required verification of results. Reimbursements to ESCOs were based on installation of energyefficiency measures and calculation of the savings through a measurement and verification protocol or Commission approved deemed savings values. Individual TDU expenditures and energy savings for calendar year 2005 are noted below.
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Uti'ity TNMP AEP - North AEP - Central AEP - Southwestern Centerpoint TXU ED Xcel EGSl Total
Expenditures
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Energy Savings (MWh)
$763,135 $1,075,714 $6,006,746 $1,859,701 $13,470,435 $50,468,751 $1,931,527 $3,353,898
4,387 6,144 32,034 21,331 107,889 251,854 59,088 14,l63
$78,929,907
496,890
COST SAVINGS
Installed energy-efficiency measures reduce ratepayers' electric consumption and as a result reduce the electrical demand on generators. Since the energy-efficiency measures must have a ten-year life, the savings benefits would accrue for a minimum of ten years. Savings equal to the 2005 energy savings are thus projected to be realized for each of the succeeding nine years. The net present value of the energy savings was calculated using a 3 percent inflation rate, a 10 percent discount rate, and a balancing energy price of $108 per MWh yielding ratepayer savings of $290 million dollars. 5
EMISSION AVOIDANCE Health and Safety Code 5 386.205 Evaluation of State Energy Efficiency Programs established the requirement for the PUC to provide an annual report to TCEQ that quantifies the reductions of emissions of air contaminants achieved from the programs implemented under PURA
539.905. Thus, while this program was not explicitly adopted to reduce air emissions, energy savings will result in reduced air emissions. CREDITING ENERGY-EFFICIENCY UNDER STATE IMPLEMENTATION PLAN
In order for emissions reduction resulting from an energy-efficiency program to obtain credit under a State Implementation Plan, the reductions must meet the requirements established in Environmental Protection Agency (EPA) guidelines that the emissions reductions are quantifiable, surplus, enforceable, and permanent. The information below addresses these issues.
QUANTIFIABLE REDUCTIONS In enacting the energy-efficiency provisions of the Texas Utilities Code, the legislature established a measurable goal for reductions in the demand of electricity, and developing a system for accurately determining the demand and energy savings from this program has been an important program objective from the outset. Since the enactment of Senate Bill 5 in the
2001 legislative session, the Public Utility Commission of Texas (PUC) has had an obligation to calculate emissions reductions resulting from energy savings associated with the energyefficiency programs that the PUC administers. There are several stages in the calculation of energy savings and emissions reductions, and the energy-efficiency program and the PUC’s calculation of emissions reductions include safeguards to ensure that the calculations are accurate. These safeguards include layers of review of claimed savings and measurement and verification procedures to ensure that reported energy savings are valid and the participation of outside agencies in developing a methodology for calculating emissions reductions. The energy-efficiency programs developed under SB 7 are administered by electric utilities, but the work to achieve savings is actually carried out by third parties under contracts with the utilities. The utilities administer standard offer programs and market transformation programs that are intended to make permanent changes in the energyefficiency of buildings and appliances in their service areas. Contractors installing energyefficiency measures calculate energy savings, subject to PUC-approved deemed savings 6
calculations and measurement and verification standards, and the utilities conduct additional verification and report the savings to the PUC.
Under the rules, the PUC has hired an
independent third party to conduct a verification of the program statewide. The independent review of the utilities programs will be completed by October 2006. To understand how the SB 7 programs work, it may be helpful to examine a specific program in more detail. A typical program is the Energy Star New Homes Market Transformation Program. The purpose of this program is to provide inducements for home builders to construct new homes that are more efficient than the baseline in their market area. Under this program, utilities: 0
leverage the Energy Star name that the Environmental Protection Agency has promoted as an advantage for consumers,
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may provide incentives to home builders to build more energy-efficient homes, have developed a statewide Home Energy Rating System and have trained raters to apply this System, and
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inspect a statistically-valid sample of homes to verify that the homes meet the criteria of the program.
The results of this program are that homes are being constructed and sold that are more energyefficient than the market standard, their energy performance has been evaluated by trained personnel against a statewide rating system, and the construction of a sample of homes has been subjected to a verification process (inspection by the utility). The results of the program in savings of energy and demand are reported to the PUC on an annual basis. The methodology for quantifying emissions reductions was developed through a collaborative process among the PUC, the Environmental Protection Agency’s Climate Protection Partnership Division, the Texas Commission on Environmental Quality (TCEQ), and the Energy Systems Laboratory (ESL). The calculations of emissions reductions for this report have been made by
ESL, using information provided by EPA, the PUC, and the utilities. The involvement of these entities and their review of each other’s work provide a high level of assurance that the methodology and its application provide a reasonable estimate of the emissions reductions resulting from the energy-efficiency program. In addition, TCEQ has in past years provided opportunities for public comment on the estimates of emissions reductions from the energyefficiency program, and we are not aware that issue has been taken with these estimates.
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SURPLUS REDUCTIONS Under the EPA guidelines, emissions reductions are surplus as long as they are not otherwise relied on to meet air quality attainment requirements in air quality programs related to the SIP. Our understanding of the SIPSfor non-attainment areas, in general, is that the reductions needed to bring an area into attainment are achieved through limitations prescribed by TCEQ on sources of emissions in the area. In the Dallas-Fort Worth area, for example, the TCEQ adopted stricter standards for air emissions from electric generating units in the non-attainment area. Individual electric generating units that are subject to these standards would typically need to install control equipment that would reduce the rate at which they emit nitrogen oxides, in order to meet the standards. Significant reductions in air emissions are achieved by the new standards. The energy-efficiency program results in additional reductions, because the energy-efficiency program would reduce the number of hours or the operating output for these plants, or both. In other words, the new TCEQ limits on emissions operate as limits on the emissions of NOx per hour of operation or megawatt of output, and the energy-efficiency programs operate independently to reduce the hours of operation or level of output in megawatts. Thus, the emissions reductions from the energy-efficiency program are surplus to the reductions resulting from stricter emissions standards. The Houston Area is under a cap and trade program, and there appears to be a question about whether the emissions reductions from energy-efficiency programs can be regarded as surplus to the reductions achieved by the cap and trade program. As we understand a cap and trade program, a cap on emissions is established for a broad market segment, and a company that reduces air emissions receives a tradable credit when it reduces emissions. For example, if an electric generating unit installs emission control equipment that exceeds its mandate, the owner of the plant could receive a credit for the reduction that could be sold to another company that is otherwise required to reduce its emissions. It appears that one of the advantages of a cap and trade program is that it gives companies that must reduce their emissions broader discretion in how they meet the emissions limits and, ultimately, the demonstration of compliance is based on actual emissions. It is not clear that, in these circumstances, reductions in emissions from energy-efficiency programs would be surplus to the emissions reductions that result from measures undertaken by the owner of an electric generating unit. If the demonstration of compliance is based on the actual emissions, it would be difficult to separate emissions reductions resulting from measures taken by the owner of a generating unit and emissions reductions resulting from the energy-efficiency program. We believe that this is an area where the TCEQ must decide whether the emissions reductions resulting from the energy-efficiency 8
program are surplus to the reductions resulting from its own regulations. We are, of course, willing to provide information or meet with TCEQ staff, as appropriate, to provide input on this matter.
ENFORCEABLE REDUCTIONS The energy-efficiency program in the Texas Utilities Code was enacted as a part of broader legislation to introduce competition in the retail sale of electricity. This legislation also resulted in a restructuring of the utilities. Most of the large utilities in Texas in 1999 were integrated companies that owned electric generating units and facilities to deliver power to customers’ homes and businesses. Restructuring resulted in the separation of the electric generating units (the production function) from the delivery facilities (the transmission and distribution functions). Today, the companies that carry out the transmission and distribution of electricity are regulated utilities, and the electric generating units in most of Texas are not subject to economic regulation by the PUC. The energy-efficiency program was intended to reduce consumption and demand for electricity through improvements in efficiency at the point of consumption. Thus, unlike other regulatory efforts that may more directly affect the level of air emissions, the energy programs work indirectly by improving customers’ efficiency. Such improvements are effective, however, in reducing production of electricity and the associated air emissions. The energy-efficiency program is enforced through the PUC’s regulatory authority with respect to electric utilities. The PUC retains broad authority over utilities and has enforcement authority over them. The enforcement authority would include the ability to impose administrative penalties and “make-up” requirements for utilities that do not meet their goals. The rules that the PUC has adopted for the energy-efficiency program require the utilities to submit an annual report of the programs, expenses, and energy savings, and a plan for the following year. The emissions reductions that are provided in this report are savings that utilities have reported for calendar year 2005, which will have a continuing impact on emissions, and projected savings for future years calculated using a small degradation factor from 2005 energy savings. Unless legislation is enacted to modify or discontinue the program, it is expected that the program will provide additional savings from its implementation in 2006 and future years.
PERMANENT REDUCTIONS The PUC’ s energy-efficiency programs require that energy-efficiency measures have at least a ten-year life, and some of the measures are expected to have longer lives. For example, programs that affect new home construction would provide benefits over the life of the home. 9
In other areas, where a program is intended to result in the adoption of a more efficient appliance, the appliance would be required to have a minimum life of ten years. Federal regulations and developing technology may result in new models for many appliances and devices with greater efficiency than current models, so that when an appliance is replaced, its replacement is likely to be as efficient as, or more efficient than, the high-efficiency models that the programs provide incentives for today. The ten-year life required by the rule and the trends for improved efficiency provide a strong argument that the energy savings and emissions reductions achieved by this program are permanent. CALCULATION OF EMISSIONS REDUCTIONS
As is noted above, the methodology for quantifying emissions reductions was developed through a collaborative process among the PUC, the Environmental Protection Agency’s Climate Protection Partnership Division, TCEQ, and ESL, and the actual calculations of emissions reductions for this report have been made by ESL, using information provided by EPA, the PUC, and the utilities. The methodology uses information from the EPA’s EGRID database of emissions rates for electric generating units and a methodology developed by the EPA for correlating the area in which energy is consumed with the area in which electrical production is affected. With this information and assumptions about which electric generating units’ output would be affected by reductions in consumption, an estimate is made for the reduction in electric production from the electric generating units in Texas and the resulting emissions reductions, Previously, the PUC has used the EGRID 1999 database, but for this report the EPA has provided a new version of EGRID, which is referred to as EGRID 2007 (25% capacity factor). This database includes updated electric generating unit information, reflecting actual and predicted plant shutdowns, and new plant construction, and changes in emission rates.
ANNUALAND PEAK DAY EMISSION REDUCTIONS The Energy Systems Laboratory has estimated the annual and peak ozone day emissions avoided as a result of the energy savings realized from the utilities’ energy-efficiency projects. TCEQ received and reviewed the data submitted by ESL, and TCEQ has provided it to the PUC for inclusion in this report. Attachment A provides the ESL’s estimated annual and peak ozoneday reductions resulting from the energy-efficiency program administered by the PUC.
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Attachment A
NOx Reductions Estimates for Electric generating Units in the ERCOT Service Area of Texas as a result of Energy Efficiency Projects in 2005
Data from Energy Systems Lab Spreadsheets dated June 19,2006
Program PUC (SB7)
FIP Code
48001 48009 48023 48027 48035 48037 48041 48049 48051 48053 48059 48063 48067 48073 48077 48083 48085 48093 48097 48099 481 13 481 19 48121 48133 48139 48143 48145 48147 48159 48161 48181 481 83 48193 48203 48207 48213 48217
County Name Anderson Archer Baylor Bell Bosque Bowie Brazos Brown Burleson Burnet Callahan Camp Cass Cherokee Clay Coleman Collin Comanche Cooke Coryell Dallas Delta Denton Eastland Ellis Erath Falls Fannin Franklin Freestone Grayson Gregg Hamilton Harrison Haskell Henderson Hill
2005 Annual (tons) 0.000
0.000 0.000 0.000 0.144 0.000 0.470 0.000 0.000 0.000 0.000 0.000 0.000 3.161 0.000 0.034 0.525 0.000 0.000 0.000 4.011 0.000 0.115 0.000 2.958 0.000 0.000 6.365 0.000 3.317 0.000 0.000 0.000 0.000 0.000 0.740 0.000
Ozone Season Day (tons) 0.000
0.000 0.000 0.000 0.001 0.000 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.009 0.000 0.000 0.001 0.000 0.000 0.000 0.012 0.000 0.000 0.000 0.009 0.000 0.000 0.019 0.000 0.009 0.000 0.000 0.000 0.000 0.000 0.002 0.000 11
48221 48223 48225 48231 48237 48251 48253 48257 48275 48277 48281 48289 48293 48313 48315 48309 48331 48333 48337 48343 48347 48349 48363 48365 48367 48379 48387 48395 48397 48401 4841 1 48417 48423 48425 48429 48439 48441 48447 48449 48455 48459 48467 48485 48487 48491 48497 48499 48503 Tons of NOx
Hood Hopkins Houston Hunt Jack Johnson Jones Kaufman Knox Lamar Lampasas Leon Limestone Madison Marion McLennan Milam Mills Montague Morris Nacogdoches Navarro Palo Pinto Panola Parker Rains Red River Robertson RockwalI Rusk San Saba Shackelford Smith Somervell Stephens Tarrant Taylor Throckmorton Titus Trinity Upshur Van Zandt Wichita Wilbarger Williamson Wise Wood Young
0.501 0.000 0.000 5.581 1.914 0.069 1.061 5.706 0.000 0.858 0.000 0.000 0.287 0.000 0.000 22.130 2.025 0.000 0.000 0.000 0.000 0.000 0.777 0.000 0.053 0.000 0.000 0.780 0.000 0.619 0.000 0.000 0.000 0.000 0.000 10.971 0.000 0.000 5.138 0.000 0.000 0.000 0.187 0.746 0.000 2.555 0.000 5.625 89.420
0.001 0.000 0.000 0.016 0.005 0.000 0.003 0.016 0.000 0.003 0.000 0.000 0.000 0.000 0.000 0.057 0.004 0.000 0.000 0.000 0.000 0.000 0.002 0.000 0.000 0.000 0.000 0.001 0.000 0.000 0.000 0.000
0.000 0.000 0.000 0.038 0.000 0.000 0.000 0.000 0.000 0.000 0.001 0.000 0.000 0.007 0.000 0.014 0.232
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NOTES: 1) EPA's eGRlD with 25% capacity factor has been used for the calculation of annual NOx emission reductions. 2) Ozone Season Day (OSD) eGRlD with 25% capacity factor has been used for the calculation of .OSD NOx emission reductions. 3) For PUC energy efficiency programs, the OSD energy consumption estimates are the average daily values calculated from the annual energy consumption. 4) The 5% annual degradation factor has been taken from: Kats, G.H. et al. (1996) "Energy Efficiency as a Commodity," ACEEE Summer Study on Energy Efficiency in Buildings, American Council for an Energy Efficient Economy, Washington, D.C., p.5,111-5.122. 5) An initial discount factor of 25% was chosen to reflect the uncertainty of the reported numbers and verifiability of the savings. 6) NOx emissions savings from PUC- SB7 program for El Paso electric, Entergy and Xcel Energy are not included. 7 ) The growth factor for PUC(SB7) is O%, since it is assumed that the future year savings estimates (based on 1999 base-year weather) will be at the same level as 2005.
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