Business in the USA: Past Failures

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Nov 21, 2013 (3 years and 11 months ago)

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Power Utilities in the Telecom
Business in the USA: Past Failures
and Future Trends


Mike Oldak

Vice President & General Counsel

Utilities Telecom Council


World Bank Sustainable Development Forum

Energy Sector Day

January 21, 2010


Mike.Oldak@UTC.org

202 833 6808

Where Are We?

Demand Projected To

Increase 40% 21% by 2030

Sources: U.S. Department of Energy, Energy Information Administration

Billon kiloWatthours

Recession

Impact?

4

Margins Projected to Fall Below
Minimum Target Levels (2007)

TRE (ERCOT)

2009/2016
+

New England
2009/2009

RFC (MISO)*

2008/2008

AZ/NM/SNV

2009/2011

California

2009/2012

Rocky Mtn

2008/2011

SPP

2015/2016
+

MRO

2009/2009

(US)

New

York

2011/2016+

RFC (PJM)

2012/2014

*Excludes MISO
resources outside the
RFC boundary

Source: NERC 2007 Long Term Reliability Assessment

Coal Plant Cancellations / Closings

2006
-

2007

Source: NRDC:
The Growing Trend Against Coal
-
Fired Power Plants; other publications


View Forward

President Obama’s

Energy / Environmental Views

Climate Change

Energy

Efficiency

Smart Grid

Renewable Portfolio

Standards

25% by 2025

Overhaul of

Federal Efficiency Codes

Increased Government Support

80% reduction by 2050

H.R. 2454 83% reduction by 2050

H.R. 2454 20% by 2020

In H.R. 2454

In H.R. 2454 and stimulus
package

Utility Industry’s Future

Tied to The Smart Grid


Smart Grid is


Smart devices and sensors from generator to end use consumer


New awareness and control over all aspects of the grid


Advanced communication linking all parts of the grid

Utility Telecom Provides Unique Benefits

Multiple Revenue Streams


Aggregate demand response to reduce wholesale market prices


Provide consumers with information and tools to optimize usage


Relieve congestion at transmission and distribution level


Avoid or defer G, T & D infrastructure investments


Optimize use of existing resources


Coordinate integration of new renewables and storage devices


Improve customer, distribution and grid reliability


Use smart grid fiber / spectrum to support other broadband needs


Utilities are uniquely positioned to

optimize

the new smart grid and


maximize

the benefits from smart grid investments

Value For Consumers and Utilities

Baltimore Gas & Electric

-0.05
0
0.05
0.1
0.15
0.2
0.25
6/1/2008
7/1/2008
7/31/2008
8/30/2008
Price (
Cents / kWh
)

Summer Hourly Electricity Price

How Smart Grid and

Smart Rates Can Help

Critical Peaks

Dynamic Peak
Pricing: Weekdays
(excluding Holidays)

2

Baltimore Gas & Electric 2009

Pilot Pricing

All


in Rate*


Critical $1.30425

Peak $0.14425

Off
-
Peak $0.09425


* Includes generation,
transmission and
delivery

$1.30

$0.14

$0.09

Peak Time
Rebate: Weekdays
(excluding Holidays)


Schedule R summer rates are $0.14 / kWh for all summer hours


Up to 12 critical peak days will be called by 6 p.m. the prior day


Customers who use less during the critical period (2


7 p.m.) on any critical


peak day will receive a rebate. Two levels being tested:


$1.75/kWh and $1.16/kWh

3

Baltimore Gas & Electric 2009

Hours in Each Summer Pricing Period

60 hours of
higher
“Critical Peak”

Ba

16

Actual Load Shapes for Participants and
Control Group during Critical Peak Event

Load Profile on CPP Day before and after Demand Response

(July 17, 2007)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Hour

Load (kWh/Hr)

PTRH

PTRH_ET_ORB

PTRH_ORB

Load Profile

Summer 2008 Pilot Smart Energy
Pricing
-

Peak Demand Reductions *

17

Orb

& Switch

Orb

Only

No

Tech

Orb

& Switch

-
25.4%

-
36.5%

-
22.3%

-
26.9%

-
31.9%

-
26.0%

-
31.2%

-
36.8%

-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
Average Customer
Program Type

No

Tech

Orb

&

Switch

Orb &

Switch

Orb &

Switch

No

Tech

No

Tech

Orb

Only

Orb

Only

% Change in Critical Peak Demand


Low Rebate $1.16
/kWh

High Rebate

$1.75 / kWh

DPP Rate

Estimated BG&E Deployment Costs

$ 482 Million (2009
-
14)

18

$10


other

$329

Meters and Modules

$99

Information

Technology

$14

Communications

$30

Smart Energy Pricing

Customer Savings Greatest Benefit

Projected Life
-
cycle Saving >$2.6 B

19

$661

$580

$452

$408

$204

$117

$104

$61

$49

Avoided Generation

Capacity Cost

Capacity Price


Mitigation

Energy Conservation

Operational

Savings

Avoided Capital

Expenditures

Avoided Transmission


Infrastructure

Energy Price Mitigation

Energy Revenues

Avoided Distribution

Capacity Cost

($'s in millions)

BG&E Residential Bill Impact

20

$0.38
$1.09
$3.72
$3.78
$2.79
$2.36
$2.21
$1.83
$0.21
$0.57
$2.87
$2.63
$1.53
$1.19
$1.16
$0.91
$0.96
$0.47
($3.18)
($5.44)
($6.32)
($10.12)
($9.01)
($14.00)
($12.00)
($10.00)
($8.00)
($6.00)
($4.00)
($2.00)
$0.00
$2.00
$4.00
$6.00
Residential Electric Customer Bill Impact
$ Per Month
Avoided Capital Expenditures
(revenue requirement)
Avoided Transmission &
Distribution Infrastructure
Energy Price Mitigation
Operational Savings (excluded
from surcharge)
Energy Conservation
Capacity Price Mitigation
Peak Time Rebates
Monthly Surcharge
Surcharge w/$200MM DOE Grant
Net Bill Impact
Over the life of the recovery period, the average monthly electric and gas
surcharge is projected to be $1.24 and $1.52, respectively

$0.00

Lesson from the Past

Utilities and Telecom


In the 1990s utilities tried to compete with commercial



telecom carriers


results were generally poor



Strengths of utilities


Efficient construction of backbone energy and telecom system


Ability to ensure highest reliability


Able to finance huge projects at low
-
risk rates


Operate in a regulatory environment where decisions will be subject to


review for both correctness and cost containment



Strength of commercial telecom carriers


Willing to take risks and act quickly


No need to seek regulatory review


Part of core business


Solid understanding of business models

Role for Utilities


Leverage core capabilities


Build out system as a carrier’s carrier



Leverage existing assets


Dark fiber


Existing infrastructure


Some utility technologies lend themselves, others do not!



Leverage economies of scope and scale


Uniquely positioned to access multiple revenue streams from investments


Relationships with local governments, authorities


Ability to energize a large, geographically diverse workforce