Electric Industry Update Aryeh B. Fishman Associate General - - PowerPoint PPT Presentation

Electric Industry Update

Aryeh B. Fishman Associate General Counsel, Regulatory Legal Affairs Edison Electric Institute

AGA-EEI Spring Accounting Conference May 18-21. 2014 San Antonio, TX

The Industry Record

Electricity: A Great Value

Sources: U.S. Department of Labor, Bureau of Labor Statistics (BLS), and U.S. Department of Energy, Energy Information Administration (EIA).

We Now Spend 4x More on Electric Apps Than on Electric Bills

Electric Bills

Household appliances, therapeutic medical equipment, telephone and facsimile equipment, electric appliances for personal care Television, audio, and video equipment Personal computers, software, and accessories Cable and satellite television, radio services, video media rental Repair of household appliances, audio-visual, and computer equipment Internet access Landline and cellular phone services

20%

12% 13% 12% 11% 2% 10% 20%

Consumable Durable

Electric Apps 80%

Source: Bureau of Economic Analysis Gross Domestic Product Survey.

National Response Event Framework

EEI CEOs

National Response Executive Committee (NREC)

National Mutual Assistance Resource Team (NMART) Regional Mutual Assistance Groups (RMAGs)

• Provide general NRE oversight
• Resolve issues identified by the NREC
• Interface with industry and government partners
• Initiates the NRE and resource allocation process
• Manages the issue resolution process
• Reports to the EEI CEOs
• Chair co-locates with EEI during NRE
• Conducts the resource allocation process
• Consists of representatives from each RMAG and EEI’s Mutual

Assistance Committee

• Lead co-locates with EEI and NREC Chair during NRE
• Maintains baseline resource availability information
• Gathers and consolidates participating utility information in

support of the allocation process

• Matches allocated resources to specific requesting utilities

Cyber & Physical Security

 Securing and protecting our nation’s critical electric grid

assets are top industry priorities

 The electric industry is the only critical infrastructure sector

subject to mandatory, enforceable cybersecurity standards

 Industry and government collaboration is essential.

Exercises are taking place nationally and regionally to prepare for extraordinary scenarios

 The industry is making significant investments to protect

the most critical assets

ESCC Organizational Structure

Electricity Subsector Coordinating Council (ESCC)

30 member body to serve as the principal entity coordinating with government counterparts on planning, preparedness, resilience, and recovery issues related to national security issues affecting the electric grid.

Leadership – 1 Chair, 2 Vice Chairs

Electricity Subsector Information Sharing and Analysis Center (ES-ISAC)

Day-to-day operations run by NREC

Steering Committee – NIAC representative, APPA, CEA, EPSA, ISO/RTO Council, NEI, NERC, and NRECA Asset Owners – CEOs proportionally representing asset owners from across industry segments

3 9 18

Electric Sector

• Utilities
• Trade Associations
• ISOs and RTOs
• North American Electric

Reliability Corp (NERC)

• Information Sharing and

Analysis Center (ISAC)

• Spare Transformer Equipment

Program (STEP)

Government

• Federal Agencies
• Regulators
• Law Enforcement
• State & Local

External Groups

• Other critical sectors
• Vendors
• Critical customers
• Media

Electricity Subsector Coordinating Council (ESCC) Coordination

• Security to support restoration
• Media and public affairs

messaging

• Logistical support, staging

Resource Allocation

• Equipment, hardware, and materials
• Human resources and expertise

Conflict Resolution

• Investigation versus restoration
• Prioritization of recovery
• Distribution of limited resources

ESCC Coordination Responsibilities

Electric Distribution System is in Transition

The Electric Distribution System Is In Transition

 Customers are gaining new distributed energy

resource (DER) options, including distributed generation (DG)

 The structure and operation of distribution systems

will change as “smart” infrastructures are built out and new DER technologies are deployed

• Ultimately, power will flow in 2 directions across

distribution systems

• Supporting a safe and reliable grid infrastructure is critical

to the deployment of new technologies

Distributive Generation

 What is Distributive Generation (DG)?

DG systems are small-scale, on-site power generation located at or near customers’ homes or business. Some common examples include solar panels, energy storage devices, fuel cells, microturbines, small wind and combine heat, and power systems.

Source: EIA

State Renewable Policies State Net Metering Policies

Public Policies Are Spurring DER Adoption

43 States Have Net Metering + 17 States Have DG/Renewable DG Goals

Other Factors Contributing To The Transition

 Declining cost of PV and new leasing models  Customer preference for “choice” or “self-supply”  Evolution of “smart” infrastructure technologies  Outage concerns – storms; cyber and physical security  Department of Defense policy to expand renewables,

“islanding”

The Power of Energy

The Look Beyond the Horizon

Typical Energy Production and Consumption for a Small Customer with Solar PV

Source: Value of the Grid to DG Customers, Institute for Electric Innovation, October 2013

Current Rate Designs Work Poorly for DG

 What’s the Problem? Most rates recover a large share of

fixed costs through variable use charges

 DG customers continue to rely on the grid and increase grid

costs, most of which are fixed

 Under most rate designs, rates to customers with DG fail to

recover right amount of fixed grid costs

 Net metering makes the cost-recovery problem worse,

shifting a larger portion of fixed costs to non-DG customers

New Regulatory Policy and Rate Design Are Needed

 To ensure reliability:

• Enhance electric infrastructure

 To ensure safety:

• Update interconnection standards & procedures

 To ensure fairness:

• Adopt new approaches to designing rates for DG so

that all users of the grid contribute to grid infrastructure

Arizona Lessons Learned

$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 Incentive Step-down 2009 2010 2011 2012 2013

15MW 19MW 23MW 44MW 47MW

Estimated Capacity

Background – Residential Distributed Energy (DE) Growth

• Rooftop solar is an option for a greater number of Arizona Public Service (APS)

Company customers. – Reduction of installed costs – Customer finance models – Federal and state investment credits – Utility rate and cash incentives (in Arizona, Net Metering)

• APS has exceeded compliance for DE (175%)

375MW Total DE out of a 7000MW peak

Background

 Regulatory finding required APS to address Net

Energy Metering (NEM) cost-shift issue in 2013

• Timing difficult given other significant policy issue under

consideration

 Initiated stakeholder technical conferences  Aggressive DE advocacy groups (Tell Utilities Solar

Won’t Be Killed (TUSK) emerged in early 2013

 Misleading public relations by TUSK campaign

distracted from factual discussion

Attack Ads - Examples

Themes:

• “Utility monopolies”
• “Tax the Sun”
• “Anti-choice/competition”

Attack Ads – Examples (2)

Attack Ads – Examples (3)

Cost Impacts of Net Metering Do They Accord with Ratemaking Principles?

 Prices to ratepayers should be based upon the actual cost to

provide them electricity

 Any subsidies (additional costs borne by some classes of

ratepayers to benefit others) should be transparent and justified

 “Societal benefits” (e.g., job creation, CO2 emissions

reductions, energy independence) should be paid for by “society”, not electricity ratepayers

 Net metering at retail rates creates a hidden subsidy

benefiting distributed generation owners at the expense of

• ther electricity ratepayers that is being defended on the

basis of the “societal benefits” that it provides

What is the Best Rate Approach for DG?

Straight Fixed/Variable Pricing (SFV)

 Fixed costs of service (transmission, distribution, metering,

customer support, taxes, interest expense) should be recovered in fixed monthly charges (customer charges and/or demand charges)

 Much of these fixed costs are currently recovered in volumetric (per

kWh) charges

 A straight fixed/variable (SFW) rate design recovers fixed costs

through fixed charges, and variable costs (fuel, purchased power) through per kWh charges

 Distributed generation customers on an SFV rate will continue to

fully compensate the utility for fixed costs of service, even if they are no longer taking electricity from the utility

ACC Decision on Nov. 14, 2013

 Interim charge supported by Residential Utility Consumer

Office and some members of the solar industry

 70 cents/installed kW = about $5/month for standard

system

 Effective Jan 1, 2014 through next APS rate case  Grandfathering:

• Existing customers through 12/31/13
• New customers Jan. 1, 2014 through next rate case

 Affidavit for all new customers  Solar adoption data filed quarterly with ACC

Operational Challenges and Benefits of the Grid

 As we move towards

wind, solar, newer units and gas turbines we are losing system inertia

By Charles E. Bayless, ASU Light Works, Arizona State University

Turbines

 This generator inertia is an important

factor in system stability

 Solar has no inertia  As we lose inertia we will have to

start adding significant inertia, energy (batteries) or rapid response reserves to meet NERC Criteria

Beacon Power Flywheel

30

By Charles E. Bayless, ASU Light Works, Arizona State University

Beacon Power Flywheel

 An important parameter for

response of the reserves is ramp rate. How fast can the reserve generators increase or decrease their output

 Ramp Rate is measured in mw

per minute

 The older displaced plants

may not work as reserves they do not have the ramp rate

AEP Gavin

By Charles E. Bayless, ASU Light Works, Arizona State University

Ramp Rate

Variability

 A GE report for NREL in May

2010 , “Western Wind and Solar Integration Study,” found that within the next decade supply variability could be 57 times demand variability

 This variability can not be

handled with today’s ramp rates

West Connect Utilities

By Charles E. Bayless, ASU Light Works, Arizona State University

Storage

 One suggested answer

for the intermittency problem is storage

 But, storage is not

cheap and you need a lot of it

By Charles E. Bayless, ASU Light Works, Arizona State University

Reserves

 However variable generation

present us with another challenge

 In the past generation only

varied one way

 So we had reserves to pick up

the slack when needed

Pacific Corp Cholla

By Charles E. Bayless, ASU Light Works, Arizona State University

Reserves Cont.

 However, today variable generation

can increase or decrease

 Thus when it increases we need

decremental reserves that can decrease quickly to match the increase in renewable generation

 BPA studies showed they needed

1050mw of decremental reserves and they ended up running and discharging extra water interfering with their fish management plans

BPA, Grand Coulee

35

By Charles E. Bayless, ASU Light Works, Arizona State University

Luxury Power

Source: Der Spiegel, September 2, 2013

Lessons Learned from Germany

(and other OECD countries)

Subsidies were too generous

(Level of subsidies was too high for the market, did not follow technology cost reductions, particularly in solar power)

Growth of renewables was too rapid (Grid and markets cannot not adjust quickly

enough to the rapid deployment of renewables, particularly wind and solar)

Impacts

• Reduction in wholesale prices adversely impacts generators and the reliability of the grid
• Increase in retail electricity prices adversely impacts consumers and competitiveness
• Multiple redesigns of the incentive programs adversely impacts the renewable industry
• Additional investment needs in the T&D networks will further raise costs

Shaping the Future Is Transformational

New Opportunities

• A changing customer model
• A changing utility business model
• A changing regulatory model

Conclusion

 The U.S. electric grid delivers a valuable product essential to

all Americans

 The electric power industry is leading the transformation to

make the grid more flexible and more resilient to meet the growing demands of our digital society

 Everyone who uses the grid should help pay to maintain it

and keep it operating reliably

 It is vital for our Nation to have a diverse supply of safe and

reliable electricity, and electric rates should be fair and affordable for all customers