Future Outlook for the Electric

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Nov 21, 2013 (3 years and 8 months ago)

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Future Outlook for the Electric
Power Sector

David K. Owens

Executive Vice President

Edison Electric Institute


EEI Transmission and Wholesale Markets School

July 2, 2009

America’s Challenges


Resolve financial crisis



Stimulate economy and get America back to work



Face challenges of climate change




Transform our society to be greener and more efficient

Energy, Food, and Raw Materials Prices Are
Rising Dramatically

0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
300.00%
350.00%
400.00%
Natural Gas
Electricity
Gasoline
Diesel
Farm
Products
Construction
Materials
Iron and
Steel
Percentage Increase: 2003-2008
Source:


Producer Price Index (Bureau of Labor Statistics,


U.S. Department of Labor)

130%

30%

240%

370%

70%

40%

150%

Recent Trends Indicate A Rise in Both
Poverty …

14.5
15
15.5
16
16.5
17
17.5
2000
2001
2002
2003
2004
2005
2006
2007
% of U.S. Population Living at

or
Below 125% of
Poverty
Line

Source:

U.S. Census

… and Consumer Debt

2000
2001
2002
2003
2004
2005
2006
2007
2008
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
$15,000
$16,000
$17,000
$18,000
$19,000
$20,000
$21,000
$22,000
$23,000
Default


Rates
(%)

Avg. Debt
per
Household

Debt is Increasing . . .

and so is Default

Increases in Energy Prices Hit Low
-

and

Fixed
-
Income Households the Hardest


Income spent on energy for
households earning



>$50,000 / year
-

7%
of income


$10,000
-

$30,000 / year


20%
of
income (25% of households)


<$10,000 / year
-

46% of
income
(8% of households)



Households earning < $30,000


Mostly senior citizens, single
parents, and minorities


Force hard decisions about what
bills to pay … housing, food,
education, health care, and other
necessities

0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Household Energy Expenditures
vs. After
-
Tax Household Income
Over $50,000
$10,000
-
$30,000
Under $10,000
One
-
third
of
Americans
shoulder major
energy burden

Sources: Redefining Progress; U.S. Census Bureau, Current Population Survey, 2006 Annual Social and Economic Supplement

A Significant Transformation is Underway
Stimulated by ……….



Restructured Financial Market



Major Initiatives to Address Climate Change



Gaps/Lack of Clarity in Federal/State Decisions on Infrastructure
and Market Issues



Emerging Technologies

Financial Crisis Impacts …

Access to Capital

Short
-
term lines of credit for small business

Long
-
term investments



Ultimately Impacting

Small Business, Consumers, and Reliability

Overview


The recession has resulted in dampened demand, but demand is
forecast to rebound and grow into the future


Commodity, equipment, and labor costs are down, making it an ideal time to build and
prepare for future demand increases


The utility industry is at the beginning of a major investment
cycle


Driven by new technology, demand growth, efficiency and environmental CAPEX


Addressing climate change and new priorities will be costly


Wall Street Restructuring: access to capital markets and
increasing cost of capital for needed utility investments


As one of the most capital
-
intensive industries, reduced access to capital markets at
higher costs, means that enhanced liquidity and financial flexibility is important


Higher Debt Costs from Financial Crisis

-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Utilities' Cost of Debt: 10
-
Year Treasury Yields and Bond
Spreads (New Offerings)

Average 10-Year Treasury Yield (%)
Average Spread Over Treasury (%)
Average Coupon (%)
Long
-
term Decline in Credit Quality:

1992 vs. 2008

4/16/1992

12/31/2008

Industry Capital Expenditures are Growing


Industry committed to reliability


-

making needed investments in
generation, transmission, smart grid/


distribution & the environment



Financial crisis initially brought sharp
revisions for 2009



Multi
-
year trend of soaring construction
/materials costs reversed in Q3 2008



Increased spending expected to continue
into the future


Total CAPEX for 2010
-
2030 ~ $1.5 trillion*


Excludes impact from climate legislation


U.S. Shareholder
-
Owned Electric Utilities

* The Brattle Group,
preliminary findings from The Edison Foundation presentation
titled Transforming America’s Power Industry. Represents the entire Power sector.

Industry Faces Difficult Decisions

Defer or cancel
infrastructure
projects to
enhance current
liquidity position

Electric reliability
could be impacted
when economy
and demand
rebound

To Invest or Not to Invest?

Opportunities
with sharply
declining
commodity and
input costs

Higher financing
costs

Uncertainty ?

President Obama’s Stimulus Vision


Immediate action to
create good jobs
in America


Partner with America’s automakers to help save jobs and ensure that the
next generation of
clean vehicles

is built in the USA




A rapid, aggressive
response to the financial crisis


using all the
tools we have


Fight for fair trade


Invest in a clean energy economy and create 5 million new green jobs


Create new job training programs for clean technologies


Boost the renewable energy sector and create new jobs


Invest in the sciences


Create a national network of public
-
private business incubators

President Obama’s Stimulus Vision


Immediate
relief for struggling families


Funds to counteract high heating costs this winter


supplement
LIHEAP



Direct, immediate
assistance for homeowners
, not a
bailout for irresponsible mortgage lenders



Electricity sector


Energy efficiency



Smart Grid


Transmission


Electric Drive Transportation

American Recovery and Reinvestment Act
(ARRA) Energy Stimulus Funding

Total: $78 Billion


Energy Efficiency


$
6.30


$13.00


$5.00


$0.30


$14.00

(Billion)

State Grants For Energy
Projects
Federal Building/Green
Initiative
Weatherization
State Appliance
Matching Grants
School Modernization &
Repair (Green Schools)
Total: 38.6 Billion


How Will The Money Flow?


DOE Direct Expenditures


Clean coal, carbon capture and storage demo, etc.


DOE Indirect Expenditures


State block grants, appliance matching grants, etc.


DOE Loan Guarantee


Directly To Federal Agencies Other Than DOE


NIST
-

Smart Grid Interoperability Standards


Federal Bonding Authority


Western Area Power Marketing Administration


Tax Breaks


View Forward

The Challenge of Balancing Core Drivers


Enormous

CapEx

Rising Costs


and Prices

No longer a declining cost industry

Fuel, infrastructure components,

global industrialization and competition

$1.5 Trillion

Exceeds current capitalization

Major new coal, nuclear and transmission

Climate Change





Congressional push for action by Summer

Emerging new influence
-

White House, EPA, States, International

Role of Renewables, Energy Efficiency, Smart Grid, New Technologies

> $1 Trillion ???


Energy

Efficiency

Demand Response

Smart Grid



Low hanging fruit for Climate Change

Need to make it a sustainable business

“Smart” appliances, buildings, grid

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

Questions We Must Answer


Climate Change


How do you minimize compliance
costs on low
-
income consumers
?


What must U.S. climate change legislation and carbon management
strategy include to
ensure economic growth and energy security and avoid
unfairness
?



Renewable Technology


How much can increased renewable capacity contribute going forward?
How
can renewables be utilized without substantially raising energy bills
for
low
-

and fixed
-
income households?



Energy Efficiency


How significant of a
role

can
energy efficiency play in the future
?


How can customers benefit
and actively participate in energy efficiency
programs from the residential and commercial perspectives?


There Is No Silver Bullet!

What Will It Take To Address

Climate Change?


Renewables


Energy Efficiency


Clean Coal Technologies


Carbon capture and storage


Nuclear


Plug
-
in hybrid electric vehicles

We need it all …

but it will be costly!

Key Climate Questions


Targets and Timetables?


Economy Wide?


Cap
-
and
-
Trade or Tax?


Mitigating Customer Impac
ts?


Auction and Dividend


Allocation to electric sector

Benefits of Allocations


Reduces customer cost impact significantly



Customers pay for costs of carbon reductions, but not for cost of
allowed emissions



Benefits all electricity users, including business and commercial
customers



Can target low
-
income customers



Accommodates regional differences in cost and electricity use

Auctioning Allowances Would Sharply Increase Costs to Customers

Financial Impacts of Climate Change



EPA


Household spending would drop by about $140 / year by 2020; gas prices
would increase 33 cents / gallon by 2030



CRAI (for National Black Chamber of Commerce)


By 2015; $730 / year less in household purchasing power, electric rates
would increase 7.3% by 2015; gas prices by 12 cents / gallon



Heritage Foundation


By 2035 electricity rates would increase by 90%, gas prices by 74%,
household energy bills by $1500


It’s ALL About the Assumptions!

American Clean Energy and Security Act


20% by 2020

29 states and DC

Waxman
-
Markey CERES Requirements

0.0
5.0
10.0
15.0
20.0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021+
CERES Requirements as Percentage of Retail Sales






Remaining renewable energy








Efficiency eligible
with

petition

(up to 8% of CERES)


Energy efficiency

eligible portion

(5% of CERES)






Waxman
-
Markey CERES Requirements

3
0

Year
Required
Annual
Percentage
EE 5%
EE 8%
2012
6.0
1.5
2.4
2013
6.0
1.5
2.4
2014
9.5
2.4
3.8
2015
9.5
2.4
3.8
2016
13.0
3.3
5.2
2017
13.0
3.3
5.2
2018
16.5
4.1
6.6
2019
16.5
4.1
6.6
2020
20.0
5.0
8
2021+
20.0
5.0
8
“State
RPS targets can be
met”
Bernstein Research


Developers and utilities have already identified projects sufficient to meet 2020 requirements


Estimate the total capital cost of these projects at $300 billion.


Europe have already achieved penetration similar a 10% RPS targets

Source: Sen. Bingaman, Rep. Waxman, Database of State Incentives for Renewables & Efficiency, North Carolina State University
, a
nd Bernstein analysis

Planned Renewable Generation vs. Requirements

of Existing State and Proposed Federal RPS

124

385

508

498

98

606

0

100

200

300

400

500

600

700

800

Existing Plants

Planned

Additions

Available in 2020

2020 State RPS

Waxman Shortfall

2020 Waxman

Renewable Generation

(million MWh
)

$304B Capex

Planned capacity additions reflect
state RPS requirements

Non
-
hydro renewables make up 4% of US capacity today
but 34% of planned capacity additions through 2020.


US Generation Capacity in 2008

(1,061 GW in Service)

Planned Capacity Additions to 2020

(352 GW)

Source; Ventyx Global Energy and Bernstein Analysis

Hydro

9%

Gas

41%

Coal

30%

Nuclear

10%

Oil

6%

Non
-
Hydro

Renewable

4%

Hydro

16%

Gas

23%

Coal

14%

Nuclear

13%

Oil

0%

Non
-
Hydro

Renewable

34%

Source: Bernstein Research

$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
CCGT
Coal
Nuclear
IGCC
Geothermal
Wind
Biomass
Solar
Long Run Marginal Cost
CO2@ $15/Mt
Backup Capacity
Source: U. S. Dept. of Energy, Black & Veatch, PG&E, company reports & Bernstein analysis

Relative Cost of Conventional and

Renewable Power Generation in $/MWh


Assuming long run fossil fuel costs of $7 / MMBtu for gas and $65 / ton for Appalachian coal (equal to
$2.60 / MMBtu), conventional resources cost roughly $60
-
$110 / MWh, excluding CO2, vs. $105
-
$135 for
geothermal, wind and biomass.


The increase in renewable generation required by state RPS is only 8% of supply
.

$65

$77

$104

$112

$104

$114

$134

$175


Renewables are expensive, but so is
conventional power

Long Run Marginal Cost in$/MWh

Wind dominates proposed renewable capacity additions


Wind accounts for 78% of planned renewable capacity additions. Solar thermal accounts
for 8% and solar photovoltaic for another 2%.


The tendency of wind to blow during off
-
peak hours limits its usefulness on power grids,
motivating utilities to explore ways of increasing the use of solar resources available
during hours of peak demand.

Source; Ventyx Global Energy and Bernstein Analysis

Planned Renewable Capacity Additions to 2020

Wind

78%

Solar Thermal

8%

Small Hydro

6%

Wood

2%

Solar PV

2%

Waste

2%

Geo

2%

The Biggest Challenge for Interconnecting and
Integrating
Renewables

is Transmission
……..



Planning



Siting



Cost Allocation


Renewables are Variable Resources!

Senate Transmission Provisions

Planning


Develop national policy principles


Roll up regional plans to interconnection
-
wide plan


Modify plans, if necessary, to achieve policy objectives


Applies to federal, state, municipal utilities, and cooperatives

Siting


No renewable energy zones


Backstop authority, with eminent domain, for high
-
priority national projects
-

345 kV and
above, renewable feeder lines 100 kV and above


Applies if state fails to act in one year, denies, or imposes unreasonable conditions; must
consult with states on state mitigation measures

Cost Allocation


Due deference to methodologies broadly supported by affected states


FERC must develop methodology


Interconnection
-
wide cost allocation permissible; costs must be reasonably proportionate to
measurable economic and reliability benefits


Lead Agency


Department of Interior


Key Differences in House Transmission
Provisions with Senate




Improves FERC backstop siting authority for Western
Interconnection but weakens it for the Eastern
Interconnection


FERC’s backstop siting authority for National Interest Electric
Transmission Corridors would be limited to interstate lines
and intrastate segments that are integral to a proposed
interstate line


FERC can only use its backstop authority for transmission
needed in significant measure to access renewable energy


Does not address cost allocation


EEI Report: Transmission
Projects Supporting
Renewable Resources


Identifies 31 transmission
projects representing $21
billion that will transmit
solar, wind, geothermal, or
bio
-
mass electricity,
projected to be completed
by year
-
end 2015.


Transmission Projects Supporting Renewable Resources
available at:
http://www.eei.org/ourissues/ElectricityTransmission/Documents/TransprojRenew_web.pdf

Actual and Planned Transmission
Investment (2000
-
2010)


Note: From 2004 to 2006,

the industry exceeded investment projections in their transmission capital budgets.
The Handy
-
Whitman Index of

Public Utility Construction Costs

used to adjust actual investment for inflation from year to year. The GDP Deflator used to adjust planned investment for inf
la
tion from year to year. Data
represents both vertically integrated and stand
-
alone transmission companies. *Planned total industry expenditures are prelimina
ry and estimated from 85% response rate to EEI’s Electric
Transmission Capital Budget & Forecast Survey. Actual expenditures from EEI’s Annual Property & Plant Capital Investment Sur
vey

& Form 1s.

Actual

Planned

Investor
-
owned utilities only

Cyber Security
-

Legislation

Cyber Security Legislation Interplay With The Electric Industry:



Senate Energy and Natural Resources Committee (Bingaman / Murkowski)


House Energy and Commerce Committee (Barrow)


Comprehensive Cyber Security Legislation


House Homeland Security Committee (Thompson / King)


Senate Homeland Security and Governmental Affairs Committee (Lieberman)


Additional Cyber Security Legislation


Senate Commerce Committee (Rockefeller /
Snowe
)

Cyber Security
-

Themes


EEI formed a broad coalition of industry stakeholders to develop
this legislative framework for partnering with the federal
government:



WHO


Which government entity gets the authority?


WHAT


What is the scope of this authority?


WHEN


What triggers the use of this authority?


HOW


Is there mandatory consultation with industry?


Energy Efficiency Can Lower Bills

Help Address Climate Change


Average US household owns 24 consumer electronic products


2 DVRs use as much energy in 1 year as a refrigerator


Play Station and X
-
Box use more electricity than a PC


PCs and TVs now account for 10% of a home’s electricity usage


99% of these products must be plugged in or recharged


42” Plasma TV uses more than twice as much as a standard 27” TV



More efficient use of energy could significantly reduce energy bills



Need to educate
all

consumers about how to save energy and use
it more efficiently


Intensified National Commitment To

Energy Efficiency Is Needed




Aggressive campaign for technologies


Smart buildings


Smart appliances


Smart electric meters and grid


Smart rates



Use of “smart technologies” and new rate designs can:


Allow consumers to control their energy usage to save money


Avoid wasting energy


Control how and when appliances do their jobs


Help utilities efficiently operate their systems and maintain reliability


Help keep supply and demand in balance


Support more efficient use of generating resources









Commercializing plug
-
in hybrid electric vehicles

Energy efficiency is our 1
st

fuel: Average cost
about $0.035 per kWh saved (EIA 2007)

Source: The Edison Foundation


Institute of Electric Efficiency

$0.000

$0.005

$0.010

$0.015

$0.020

$0.025

$0.030

$0.035

$0.040

$0.045

$0.050

2000

2001

2002

2003

2004

2005

2006

2007

$/kWh

Total Utility EE Costs per kWh Saved (200
-
2007)

Source: EIA Form 861

Total U.S. utility spending on energy
efficiency programs: $2.5 billion in 2007

Source: The Edison Foundation


Institute of Electric Efficiency

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

2000

2001

2002

2003

2004

2005

2006

2007

$1,000,000,000

Total Utility Spending on EE & LM (2000
-
2007)

-

Source: EIA Form 861

What is the Smart Grid?


An advanced, telecommunication / electric grid with
sensors and
smart devices linking all aspects of the grid
, from generator to
consumer, and
delivering enhanced operational capabilities
that :



1.
Provide
CONSUMERS
with
the information and tools
necessary


to

be
responsive
to electricity grid conditions (including price and reliability)
through the use of

electric devices and new services (from smart
thermostats to PHEV)


2.
Ensure
EFFICENT

use of the electric grid (
optimizing current assets
while
integrating emerging technologies
such as renewables and
storage devices)


3.
Enhance
RELIABILITY

(
protecting the grid

from cyber and natural
attacks,
increasing power quality
and promoting early detection and
self correcting grid “
self
-
healing
”)

Smart Grid …

Sensing
and Measurement

Advanced Sensors


Remote Monitoring of
Expensive Equipment

(e.g. Transformers)


Smart Meters


Smart Grid …

Integrated
Communications

Examples:


Powerline

Broadband over Powerline (BPL)

Cellular

Radio Frequency (RF)

Satellite


Smart Grid …

Advanced
Control

Smart meter platform and home area
network technologies will take EE and DR to
new levels

HAN communication

SmartMeter

communication


Giving customers the
tools and the know
-
how to
be smarter energy
consumers



http://smartmeterpedia.synthasite.com/Enernex_Map.php

Automated Meter Reading

Advance Metering Infrastructure

Strategic Importance of Smart Grid


Smart Grid means different things to different people, even within
our industry, but the concept's day has arrived



A cornerstone
of President Obama's
energy policy



Significant contributor in meeting the Administration’s economic
stimulus goals and the industry’s energy infrastructure needs



Enabler of national energy and environmental goals



Expand energy efficiency


Integrate more renewables and energy storage to the grid


Reduce greenhouse gases and meet the challenge of climate change


Improve reliability



Potential to transform utility business model and relationship to,
and role of, our customers




The Changing Competitive Environment


Smart Grid Opportunities



Unique role of utility to optimize the integration of existing and future supply
and demand resources

renewables, energy storage, smart devices etc.



Empowering customers with information and tools to keep supply and
demand in balance
-

“smart devices, smart rates”



Increasing the efficient use of existing resources and improving reliability



Powering the electric transportation market (PHEVs)



New business partnerships, new products, new services









The Changing Competitive Environment


Smart Grid Challenges



The potential for new regulatory policies to negatively impact utility revenue (net
metering, increased reliance on energy efficiency without cost recovery, etc.)



Mid
-
deployment changes in regulatory requirements, standards & protocols that
impact cost recovery



Cyber vulnerabilities as with the increasingly reliance on technology



Emergence of new competitors, new competitive alliances, & new business models
and the resulting potential of changed customer relationships



New pressures on state
-
federal relationship due to cost
-
benefit misalignment



The open question is how to change business models to

remain competitive




Existing FERC Focus


Overall theme


expansion of wholesale competition



Focused on exercising authority
-

rarely pushed the edges





Transmission Access
(Order No. 890)



Infrastructure Build
-
Out


Transmission, LNG Terminals, Gas Pipelines



Reliability Issues


Particularly Cyber Security



Structure of Wholesale Markets


Market power issues, standards of conduct, affiliate rules





Existing Areas of

Federal / State Collaboration

Regional Planning

Demand

Response

Smart Grid


Emerging New FERC Focus

New Overall Theme
: “Green” approach to regulatory mission, support Obama’s overall
energy, environment and climate platform



Regulation of Carbon Markets


Clarify jurisdiction boundaries


FERC, CFTC, SEC


Expand regulatory goals


Regulation of Combined Efficiency and Renewable Electricity
Standard (CERES
)


FERC will prescribe standards and protocols for defining and measuring electricity
savings


FERC will specify types of EE measures


FERC will receive and evaluate all state applications for eligible electricity savings


Smart Grid Investment and Cost Recovery


Distributed Resources


How do these areas fit together?


How do they impact FERC/State relationships?


Evolving Areas of

Federal / State Collaboration

Transmission
Siting

Smart Grid

Cyber Security

Carbon

Renewables
,

Energy
Efficiency,
Demand
Response

Climate Change A

Transformational Issue


Changing Regulatory Model (legislative initiatives)


Market / Environmental Initiatives


Cap and Trade System


Renewable Portfolio Standards / Energy Efficiency Resource Standards


New Federal / State Authorities


Siting, planning, cost allocation


Market and environmental oversight



Changing Industry Business Model


Green / More Efficient Economy


Alter power supply mix


Energy efficiency as a viable business


Embrace smart technologies


give customers information and tools


Support new technologies


storage, DG, Large scale renewables


Implement PHEV infrastructure


A more reliable and secure grid

New Opportunities

Opportunities
-

Green Jobs


Energy Independence and Security Act of 2007


$125 million / year to create a worker training program, special focus on
opportunities for low income people



American Reinvestment and Recovery Act (Stimulus Bill)


Significant funding for a broad range of programs


including energy
efficiency, renewables, climate change, smart grid


Workforce training



Renewables
-

Roof
-
top solar heating, water, energy


Meeting the increasing state, federal and consumer requirements



Energy Efficiency


Energy audits, retrofits, new technologies, green building standards


Efficiency management


data mining

Opportunities
-

Green Jobs


Smart meters / smart grid


Replacing legacy systems with new technologies



Demand response


Provide consumers and utilities with new tools to manage demand



Plug
-
in Hybrid Electric Vehicles



Need programs to develop and attract new talent



The View Forward


Respond to comprehensive energy and climate legislation


Preserve all options


Accelerate development of technologies


Mitigate the impact of rising costs on consumers


Ensure regulatory environment supports environmental initiatives



Develop a new regulatory model which …


Stimulates new investment


Provides timely cost recovery


Equitably transforms our society to a greener and more energy efficient
economy



Question / Discussion



Contact Information:


David K. Owens

Edison Electric Institute

(202) 508
-
5527

dowens@eei.org