Power Utilities in the Telecom Power Utilities in the Telecom Business in the USA: Past Failures Business in the USA: Past Failures

and Future Trendsand Future TrendsMike Oldak

Vice President & General CounselUtilities Telecom Council

World Bank Sustainable Development ForumEnergy Sector Day

January 21, 2010

Mike.Oldak@UTC.org202 833 6808

Where Are We?Where Are We?

Demand Projected To Demand Projected To Increase 40% 21% by 2030Increase 40% 21% by 2030

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

Bill

on k

iloW

atth

ours Recession

Impact?

4

Margins Projected to Fall Below Margins Projected to Fall Below Minimum Target Levels (2007)Minimum Target Levels (2007)

TRE (ERCOT)2009/2016+

New England 2009/2009

RFC (MISO)*2008/2008

AZ/NM/SNV2009/2011

California2009/2012

Rocky Mtn2008/2011

SPP2015/2016+

MRO2009/2009

(US)

New York2011/2016+

RFC (PJM)2012/2014

*Excludes MISO resources outside the RFC boundary

Source: NERC 2007 Long Term Reliability Assessment

Coal Plant Cancellations / ClosingsCoal Plant Cancellations / Closings2006 - 20072006 - 2007

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

View ForwardView Forward

President Obama’s President Obama’s Energy / Environmental ViewsEnergy / Environmental Views

Climate ChangeClimate Change

EnergyEnergy Efficiency Efficiency Smart GridSmart Grid

Renewable PortfolioRenewable PortfolioStandardsStandards

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 FutureUtility Industry’s FutureTied to The Smart GridTied 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 Utility Telecom Provides Unique Benefits

Multiple Revenue StreamsMultiple 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 UtilitiesValue For Consumers and Utilities

Baltimore Gas & Electric Baltimore Gas & Electric

How Smart Grid and How Smart Grid and Smart Rates Can HelpSmart Rates Can Help

Critical Peaks

Dynamic Peak Pricing: Weekdays Dynamic Peak Pricing: Weekdays (excluding Holidays)(excluding Holidays)

2Baltimore Gas & Electric 2009

Pilot Pricing All – in Rate*

Critical $1.30425Peak $0.14425Off-Peak $0.09425

* Includes generation, transmission and

delivery

$1.30

$0.14

$0.09

Peak Time Rebate: Weekdays Peak Time Rebate: Weekdays (excluding Holidays)(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

3Baltimore Gas & Electric 2009

Hours in Each Summer Pricing PeriodHours 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

(kW

h/H

r)

PTRH PTRH_ET_ORB PTRH_ORB Load Profile

Summer 2008 Pilot Smart Energy Summer 2008 Pilot Smart Energy Pricing - Peak Demand Reductions *Pricing - Peak Demand Reductions *

17

Orb & Switch

OrbOnly

No Tech

Orb & Switch

No Tech

Orb &

SwitchOrb &Switch

Orb &Switch

No Tech

No Tech

OrbOnly

OrbOnly

% C

hang

e in

Crit

ical

Pea

k D

eman

d

Low Rebate $1.16 /kWh

High Rebate$1.75 / kWh

DPP Rate

Estimated BG&E Deployment CostsEstimated BG&E Deployment Costs$ 482 Million (2009-14) $ 482 Million (2009-14)

18

$10 other

$329Meters and Modules

$99Information Technology

$14Communications

$30Smart Energy Pricing

Customer Savings Greatest BenefitCustomer Savings Greatest BenefitProjected Life-cycle Saving >$2.6 BProjected 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 MitigationEnergy Revenues

Avoided Distribution Capacity Cost ($'s in millions)

BG&E Residential Bill ImpactBG&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 InfrastructureEnergy 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 PastLesson from the PastUtilities and TelecomUtilities 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 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