electric industry update · resource team (nmart) regional mutual assistance groups (rmags) •...
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Electric Industry Update
Aryeh B. FishmanAssociate General Counsel,
Regulatory Legal AffairsEdison Electric Institute
AGA-EEI Spring Accounting ConferenceMay 18-21. 2014San 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
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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 Adoption43 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
15MW19MW
23MW
44MW47MW
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 MeteringDo 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 other 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
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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