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1 SOUTHWEST POWER POOL 2015 LOOKING FORWARD REPORT Strategic Issues Facing the Electricity Business Presented to The SPP Board of Directors | Members Committee.

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Presentation on theme: "1 SOUTHWEST POWER POOL 2015 LOOKING FORWARD REPORT Strategic Issues Facing the Electricity Business Presented to The SPP Board of Directors | Members Committee."— Presentation transcript:

1 1 SOUTHWEST POWER POOL 2015 LOOKING FORWARD REPORT Strategic Issues Facing the Electricity Business Presented to The SPP Board of Directors | Members Committee By Vincent Musco Sam Choi April 28, 2015

2 PURPOSE A.Report contributes to longer-term strategic planning by the Board B.Eight issues in all, including three updates 2 1

3 ISSUES I.Blurred Jurisdictional Lines II.Update on the Changing Electric Sector Business Model (Update) III.Thoughts on a Framework for Evaluating Transmission Investments IV.Wind (and Solar) Exports from SPP’s Footprint V.EPA’s Continued Environmental Campaign (Update) VI.The Shale Gas Revolution (Update) VII.Physical Grid Security VIII.Smart Grid 2

4 I. BLURRED JURISDICTIONAL LINES

5 A.Four Jurisdictional Developments 1.Resource Adequacy 2.Demand Response 3.Sales from Distributed Generation 4.Environmental Dispatch 3

6 I. BLURRED JURISDICTIONAL LINES B.Resource Adequacy 1.Maryland, 1 New Jersey 2 Cases from Courts: States violated Supremacy Clause 3 3.Boston Pacific PUF Article: Bad Policy a.Risks reliability: 0.1 percent of new generation is built for RTO capacity market revenues 4 b.Threatens other programs: RPS, default service c.Better split: States get Long-Term, FERC Short-Term 4.Seeking consideration at U.S. Supreme Court “Memorandum of Decision,” Case 1:12-cv-01286MJG, In the U.S. District Court for the District of Maryland, Sept. 30, 2013, “Memorandum,” Civil Action No , In the U.S. District Court for the District of New Jersey, Oct. 11, 2013, United States Court of Appeals for the Third Circuit, Case No , September 11, 2014; United States Court of Appeals for the Fourth Circuit, Case No , May 13, “Power Plants are not Built on Spec,” American Public Power Association, 2014, “Petition for a Writ of Certiorari,” CPV Power Development, Inc., et al. v. PPL EnergyPlus, LLC, et al., February 11, 2015; “Petition for a Writ of Certiorari,” Douglas R. M. Nazarian, et al., v. PPL EnergyPlus, LLC, et al., February 11, 2015.

7 I. BLURRED JURISDICTIONAL LINES C.Demand Response 1.Court vacates FERC Order No. 745: Demand Response is Retail, not Wholesale 6 2.Bigger threat: Capacity Markets 3.Petition to appeal at U.S. Supreme Court is pending Electric Supply Ass’n v. FERC, No , et al. 7. “Petition for a Writ of Certiorari,” Federal Energy Regulatory Commission vs. Electric Power Supply Association, et al.

8 I. BLURRED JURISDICTIONAL LINES D.Sales from Distributed Generation 1.Existing policy: FERC oversees all, unless from QFs 2.Challenge: What if intrastate? 8 E.Environmental Dispatch 1.Clean Power Plan: Pricing carbon? 2.FERC Just and Reasonable Standard 3.Early chatter is positive 4.State collaboration encouraged 6 8. Frank R. Lindh, Thomas W. Bone, Jr., “State Jurisdiction over Distributed Generators,” Energy Law Journal, Volume 34, No. 2, December 16, 2013.

9 II. UPDATE ON THE CHANGING ELECTRIC SECTOR BUSINESS MODEL

10 A.Summary (update) 1.No conclusive evidence that widespread decentralization is imminent 2.“Intelligent chatter” about constructive steps 3.But also some pushback 7

11 II. UPDATE ON THE CHANGING ELECTRIC SECTOR BUSINESS MODEL B.Cost Reductions in Decentralized Tech 1.Solar PV a.Solar City: $1.20/watt target 9 b.Berkeley Labs Bullis, “Solar City and Tesla Hatch a Plan to Lower the Cost of Solar Power,” MIT Technology Review, September 19, Lawrence Berkeley National Laboratory, Tracking the Sun VII, September 2014, p. 13.

12 II. UPDATE ON THE CHANGING ELECTRIC SECTOR BUSINESS MODEL C.Private Innovation: New Decentralized Business Models 1.Distributed Solar 2.Virtual Power Plants 9

13 II. UPDATE ON THE CHANGING ELECTRIC SECTOR BUSINESS MODEL D.Financial Pressure on Utilities In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade. We see near-term risks to credit from regulators and utilities falling behind the solar + storage adoption curve and long- term risks from a comprehensive re-imagining of the role utilities play in providing electric power. -Barclays, May Michael Aneiro, “Barclays Downgrades Electric Utility Bonds, Sees Viable Solar Competition,” Barron’s Income Investing, May 23, 2014.

14 II. UPDATE ON THE CHANGING ELECTRIC SECTOR BUSINESS MODEL E.Regulatory Initiatives 1.New York PSC’s “Reforming the Energy Vision” initiative a.Utility as “ISO” for distributed resources 11

15 III. FRAMEWORK FOR EVALUATING TRANSMISSION INVESTMENTS

16 A.One of Board’s most important roles 1.NTCs: $1.52 billion (2012); $1.64 billion (2013); $1.48 billion (2014) 12 B.Five different, disparate issues 1.Customer pushback 2.Reliability benefits 3.Decentralized alternatives Southwest Power Pool, “2013 SPP Transmission Expansion Plan Report,” January 29, 2013, Southwest Power Pool, “2014 SPP Transmission Expansion Plan Report,” January 6, 2014, Southwest Power Pool, “2015 SPP Transmission Expansion Plan Report,” January 5, 2015.

17 III. FRAMEWORK FOR EVALUATING TRANSMISSION INVESTMENTS C.Customer Pushback 1.PSE&G “Energy Strong” 2.GE Digital Energy: Just 38% would spend $10/month more to ensure reliability 13 D.Reliability Benefits 1.Value of Lost Load 2.Cost of U.S. outages: $20 billion to $150 billion/year GE Digital Energy, “Grid Resiliency Survey,” August 14, Johannes Pfeifenberger, “Reliability and Economics: Separate Realities or Part of the Same Continuum?,” The Brattle Group, Presented to the Harvard Electricity Policy Group, December 1, 2011.

18 III. FRAMEWORK FOR EVALUATING TRANSMISSION INVESTMENTS E.Decentralized Alternatives 1.Microgrid, storage, PV success stories 2.Comparability 3.Public Policy Dependence 14

19 IV. WIND (AND SOLAR) EXPORTS FROM SPP’S FOOTPRINT

20 A.Purpose: Exploring additional exports of wind (and solar) power, especially to southeast 1.Supply 2.Demand 3.Transport 4.Next Steps 15

21 IV. WIND (AND SOLAR) EXPORTS FROM SPP’S FOOTPRINT B.Supply: SPP the “Saudi Arabia” of wind 16

22 IV. WIND (AND SOLAR) EXPORTS FROM SPP’S FOOTPRINT B.Supply: Substantial Solar 17

23 IV. WIND (AND SOLAR) EXPORTS FROM SPP’S FOOTPRINT C.Demand 18

24 IV. WIND (AND SOLAR) EXPORTS FROM SPP’S FOOTPRINT C.Demand 1.Economics a.PTC-wind PPAs averaged 2.1 cents per kWh (or $21/MWh) in b.Reliant on PTC c.Must consider cost of transport, risk d.Diversity Benefits: IHS estimates $93 billion/year “2013 Wind PPA Prices In U.S. Interior Averaged 2.1 Cents/kWh (Windpower 2014),” Clean Technica, May 8, 2014.

25 IV. WIND (AND SOLAR) EXPORTS FROM SPP’S FOOTPRINT D.Transport 1.AC Expansion a.Reliability Benefits b.Existing SPP processes c.Expensive d.Interregional Coordination 2.HVDC 1.Cleaner cost allocation, system impacts 2.Expensive, difficult to permit 20

26 IV. WIND (AND SOLAR) EXPORTS FROM SPP’S FOOTPRINT E.Next Steps 1.Consider SPP value proposition a.Lower LMPs, Jobs, Reliability 2.Consider Target Market a.Southeast ready to diversify after clean coal, nuke? 3.If still interested, consider hosting expo a.Developers pay, present b.Utilities, regulators, legislators attend 4.Work with neighbors on interregional planning 21

27 V. EPA’S CONTINUED ENVIRONMENTAL CAMPAIGN

28 A.Future of coal-fired generation being driven by four primary EPA regulations 1.CSAPR, MATS, 316(b), and CCR 2.GAO: one-third of all coal plant capacity to be retired or retrofitted According to the GAO report in 2012, there was 309,680 MW of coal-fired capacity. EPA Regulations and Electricity: Update on Agencies’ Monitoring Efforts and Coal-Fueled Generating Unit Retirements, GAO, August 2014, 5,

29 V. EPA’S CONTINUED ENVIRONMENTAL CAMPAIGN B.Clean Power Plan will pressure coal even more 1.30% reduction in CO 2 emissions from power sector 17 2.Applies to both existing and new power plants 3.NERC study estimates between 108 and 134 GW in capacity reductions Overview of the Clean Power Plan: Cutting Carbon Pollution from Power Plants, U.S. Environmental Protection Agency, June Potential Reliability Impacts of EPA’s Proposed Clean Power Plan: Initial Reliability Review, NERC, November 2014, 2. 23

30 C.Clean Power Plan: Regional vs. state-by- state compliance 1.MISO: Regional approach saves $3 billion 19 2.PJM: State-by-state compliance more expensive in $45 billion vs $35 billion 20 V. EPA’S CONTINUED ENVIRONMENTAL CAMPAIGN 19. GHG Regulation Impact Analysis – Initial Study Results, MISO, September 17, Sotkiewicz and Abdur-Rahman, EPA’s Clean Power Plan Proposal Review of PJM Analyses Preliminary Results, PJM, November 17, 2014,

31 VI. THE SHALE GAS REVOLUTION

32 A.No slowdown in momentum in near-term: 1.Shale gas production grew six-fold from 2007 to 2013, with total production of natural gas increasing by 22% in same period 21 2.Shale gas was 40% of total natural gas extracted in Total proved natural gas reserves grew 80% from 2003 to 2013, with shale gas reserves accounting for 45% of total proved reserves in VI. THE SHALE GAS REVOLUTION EIA, Natural Gas Gross Withdrawals and Production, release date February 27, Ibid. 23. EIA, U.S. Crude Oil and Natural Gas Proved Reserves, Table 8, released December 4, 2014.

33 4.Natural gas prices in 2015 remain historically low around $3/MMBtu 24 VI. THE SHALE GAS REVOLUTION 26 Henry Hub Natural Gas Spot Price ($/MMBtu) 24. EIA, Henry Hub Natural Gas Spot Price, release date March 11, 2015.

34 5.EIA forecasts natural gas will account for 35% of electricity generation in 2040, up from 30% in VI. THE SHALE GAS REVOLUTION Electricity Generation by Fuel in EIA’s 2014 Annual Energy Outlook Reference Case (billion MWh) EIA Annual Energy Outlook, Table A EIA Annual Energy Outlook 2014, MT-16.

35 B.Uncertainty for the long-term 1.Below-ground risks a.EIA projects shale gas production growth to continue, but forecast natural gas prices increasing at 2.9% (in real terms) annually 27 b.Expert studies are skeptical about EIA’s estimate of reserves, production, and technological innovation VI. THE SHALE GAS REVOLUTION EIA, Annual Energy Outlook 2014, April 2014 (2014 EIA Annual Energy Outlook), MT-21.

36 2.Above-ground risks a.New York’s ban on hydraulic fracturing b.Oklahoma Supreme Court case on liability for man-made earthquakes c.Potential for significant LNG exports VI. THE SHALE GAS REVOLUTION 29

37 VII. PHYSICAL GRID SECURITY

38 A. Two important events led to nation-wide debate about grid vulnerabilities high-profile sabotage of PG&E’s substation 2.Leaked FERC analysis shows “coast-to-coast blackout” possible from multiple substation attacks Paul W. Parfomak, Physical Security of the U.S. Power Grid: High –Voltage Transformer Substations, Congressional Research Service, June 17, 2014, 6. 30

39 VII. PHYSICAL GRID SECURITY B.Resiliency may be better solution than physical hardening 1.Other threats more likely to occur with equal or greater impact (e.g. storms, earthquakes) 2.Investments to allow an alternative route of power 31

40 VIII. SMART GRID

41 A. Recent surge in smart grid investment 1.$18 billion spent on smart grid technologies from 2010 to 2013 with nearly half from federal funding 2.Mostly directed to advanced metering infrastructure 29. U.S. Department of Energy, 2014 Smart Grid System Report, August 2014, Historical and Projected U.S. Smart Grid Investment 29

42 VIII. SMART GRID B. AMI provides benefits via two-way and real-time communications 1.Reduce peak demand, and potentially, defer new capacity needs 2.Example: OG&E will roll out time-based rate program to 20% of customers with aim to defer investment of 170 MW of power plant capacity United States Department of Energy, Demand Response Defers Investment in New Power Plants in Oklahoma, April

43 VIII. SMART GRID C. Can industry maintain momentum? 1.Federal funding ends in Cybersecurity issues 34


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