Transmission Summit West 2013

Copyright © 2013 by ScottMadden, Inc. All rights reserved.

The Changing Utility Landscape and its

Implications for Transmission

Transmission Summit West

September 24, 2013


Table of Contents

Demand Growth and Implications

Changes to the Generation Portfolio

Technology Innovation

Utility Business Model

Implications for Utilities and for Transmission

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2

Electricity Use Trends and Forecast

80%

85%

90%

95%

100%

105%

110%

2007 2008 2009 2010 2011 2012

Electricity Sales by End-Use Sector, in Trillion KWHs

Residential Commercial Industrial Direct Use

Source: EIA, Electric Power Monthly, April 2013

The Energy Information Administration (EIA)

projects growth in electricity use in the United

States to remain below 1% for the

foreseeable future

All types of end-use demand declined,

beginning in 2008

Industrial end-use saw the greatest decrease

of all sectors in 2009

Residential saw an uptick in 2010 but has

been declining since

Commercial use has been the most stable

but is still below pre-recession levels

Direct energy use has increased in the years

2009–2012, possibly at the expense of other

types of demand

US Demand Growth 1950-2040

Copyright © 2013 by ScottMadden, Inc. All rights reserved. Copyright © 2013 by ScottMadden, Inc. All rights reserved.

In the Intermediate Term – Significant

Coal Plant Retirements Will Occur

3

Significant coal retirements are underway: Environmental regulations are increasing pressure on coal-fired

generators to invest in new air quality controls or to retire (before year-end 2015); this capacity will largely be

offset by new gas-based generation

Announced Coal-Fired Plant Retirements as of Jan. 2013 (Focus on WECC and ERCOT)

Selected U.S. Coal Plant Retirement Forecasts (including

2012): 30 GWs to 100 GWs between 2015 and 2020

Analyst Projected Retirements

Union of Concerned

Scientists

59 GWs “ripe for retirement” in

add’n to est. 41 GWs announced

Brattle 59–77 GWs

EIA 49 GWs by 2040

Sanford Bernstein 75 GWs by 2033

Reuters/Factbox 36 GWs by 2015

Barclays 24–29 GWs by 2015 (exclusive of 9

GWs retired in 2012)

Black & Veatch 62 GWs by 2020

Standard & Poor’s 35–50 GWs by 2016

BMO Capital Markets 30 GWs by 2020 (exclusive of 9

GWs retired in 2012)

Sources: Industry news; SNL Financial; ScottMadden analysis


Coal Retirements in WECC

Comments

Of the proposed retirements

between 2013–2018, the majority

are slated to occur in the Mid-

Atlantic and parts of the Midwest

and South

A total of 2530 MWs of coal is

scheduled to be retired in WECC

Coal retirements are not the

primary driver of new

transmission needs in WECC

4

Unit State

Operating

Capacity

(MW)

Original

In-service

Year

Date to be

Retired

Age at

Retirement Ultimate Parent

Arapahoe ST 3 CO 44 1951 12/1/13 62 Xcel Energy Inc.

W N Clark ST 1 CO 18 1955 12/1/13 58 Black Hills Corp.

W N Clark ST 2 CO 25 1959 12/1/13 54 Black Hills Corp.

Port of Stockton District

Ener CFG STG CA 44 1987 2013 26 DTE Energy Co.

Ben French ST1 SD 22 1961 3/1/14 53 Black Hills Corp.

Neil Simpson ST5 WY 19 1969 3/1/14 45 Black Hills Corp.

Osage (WY) ST1 WY 10 1948 3/1/14 66 Black Hills Corp.



Reid Gardner ST1 NV 100 1965 2014 49 NV Energy Inc.



Carbon ST1 UT 67 1954 1/1/15 61 Multi-owned

Carbon ST2 UT 105 1957 1/1/15 58 Multi-owned

Cherokee (CO) ST3 CO 152 1962 2015 53 Xcel Energy Inc.

San Juan ST2 NM 320 1973 12/17/13 44 Multi-owned

San Juan ST3 NM 495 1979 12/17/13 38 Multi-owned

Valmont ST5 CO 184 1964 12/17/13 53 Xcel Energy Inc.

Cherokee (CO) ST4 CO 352 1968 2017 49 Xcel Energy Inc.

Reid Gardner ST4 NV 255 1983 2017 34 Multi-owned

Kennecott Utah Copper

ST1 UT 50 1943 1/18/13 75 Rio Tinto


ST2 UT 25 1943 1/18/13 75 Rio Tinto


ST3 UT 25 1946 1/18/13 72 Rio Tinto

Planned Coal Unit Retirements for WECC, 2013–2018

Sources: SNL Financial; NERC 2012 Long Term Reliability Assessment


5

Wind Top 10 WECC Wind

Projects by Capacity in Advanced Development or Construction

Phase with Estimated Cost

Power Plant Owner Name

New

Capacity

(MW)

State

Estimated

Completion

Date

Estimated

Construction

Cost ($000)

Mescalero Ridge

Wind Project

Caithness

Energy LLC 800 NM - $1,760,000

Tucannon River Wind

Farm (Lower Snake

River Phase II)

Portland

General

Electric Co.

267 WA 2015 $535,000

Summit Ridge Wind

Farm

Lotus Group

USA 200 OR 01/2015 $440,220

Alta East Wind

Project

ArcLight

Capital

Partners LLC

153 CA - $336,600

Alta East Wind

Project

Global

Infrastructure

Mgmt LLC

153 CA - $336,600

Alta Wind X

ArcLight

Capital

Partners LLC

138 CA 01/2015 $303,600

Alta Wind X

Global

Infrastructure

Mgmt LLC

138 CA 01/2015 $303,600

North Sky River

Wind Energy

Project

NextEra

Energy 135 CA - $295,812

Pacific Wind

EDF

Renewable

Energy

110 CA 2013 $242,000

Echanis Project

Columbia

Energy

Partners

104 OR - $300,000

Industry Trends

WECC experienced the largest annual capacity increase

of the NERC regional entities

• Of the 13,129 MW of wind added in the U.S. in

2012, 3,918 MW were added in WECC

• Total WECC utility wind capacity as of 2012 was

18,327 MW

At the end of 2012 there were 125 GWs of wind capacity

in the interconnection queues in the US

On a cumulative basis, Texas remained the leader

among states, with 12,214 MWs installed at the end of

2012—more than twice as much as the next-highest state

(California, with 5,542 MWs)

Sources: WECC 2012 Power Supply Assessment, Wind Technologies Report, California ISO, SNL


6

Solar

Industry Trends

In 2013, the U.S.’s cumulative installed solar capacity

will surpass 10 GWs (utility scale + DG), with 4.4

GWs of PV and 912 MWs of concentrating solar power

(CSP) installed so far in 2013

There were 38 individual utility scale PV projects

totaling 452 MWs completed in Q2 2013. All ten of

the largest projects completed were installed in either

California or Arizona

Top 10 WECC Solar Projects by Capacity in Advanced Development or

Construction Phase with Estimated Cost

Power Plant Owner Name

New

Capacity

(MW)

State

Estimated

Completion

Date

Estimated

Construction

Cost ($000)

Desert Sunlight

Project

NextEra

Energy 550 CA 2015 $2,300,000

Desert Sunlight

Project

Sumitomo

Corp. of

America

550 CA 2015 $2,300,000

Desert Sunlight

Project

GE Energy

Financial

Svcs

550 CA 2015 $2,300,000

Palen Solar Electric

Generating System

(CA Solar 10)

Chevron

Energy

Solutions

500 CA 06/2016 $2,000,000


Generating System

(CA Solar 10)

Caithness

Energy LLC 500 CA 06/2016 $2,000,000


Generating System

(CA Solar 10)

BrightSource

Energy Inc. 500 CA 06/2016 $2,000,000

Blythe Solar Power

Project

(Photovoltaic)

NextEra

Energy 485 CA 2018 $1,130,000

Nevada 300 Solar

Project (Techren)

Sustainable

Energy

Capital

300 NV 12/2014 $800,000

Nevada 300 Solar

Project (Techren)

POSCO

Power 300 NV 12/2014 $800,000

Stateline Solar

Project

First Solar

Development

LLC

300 CA 12/2016 $1,590,000

Sources: EIA (latest data as of Aug. 2013), SEPA, GTM, SNL, Sustainable Business News, NY Times, ScottMadden analysis


7

Technology Innovation and Reduction of Load

Automated Metering Infrastructure

Improving Functionality:

Demand side management (DSM) , DR, and EE

programs have been around for a long time

Emerging technologies are increasing the capability

and reach of these programs

AMI enables direct control of customer

devices during peak-load conditions and

two-way communication about load

reductions

DA is increasing the reliability and resiliency

of the distribution grid

Markets and aggregation of DR are creating a new

“supply” source

DR and EE programs can be used to reduce load

and to defer expenditures on utility infrastructure

DSM and Energy Efficiency


8

Technology Innovation and

Customer Alternatives

Microgrids

Sources: EIA Form 860 data as of Jan. 2013 for Distributed Energy Resources chart; SEPA, EIA

Distributed Energy Resources

Enabling customer alternatives:

Facilitated by Smart Grid, net metering

policies, and subsidies, more and more

distributed energy resources are being

deployed

There are approximately 71,000 MWs

of CHP on the grid today

As of 2012, there were 3.5 GWs of net

metered projects on the grid; 80% were

in five states (Source: SEPA)

Microgrids are emerging as a viable option for

commercial customers and are a substitute for

generation, transmission, and distribution

Drivers for microgrid implementations

include increased reliability, economics,

and “green” alternatives

As storage technologies mature, they will

enable more customer-side resources


Industry Trends

Several drivers are contributing to the current

interest in microgrids—reliability, RPS, grid security,

and economics

Reliability has been the primary driver of

demand, as it enables consumers to be self-

sufficient during times of power disruption—

storms highlight the issue

Smaller scale renewables can be utilized

Certain customers are attracted by economics

Fuel choices are increasing (e.g., natural gas, solar,

biomass); however, economic viability varies by

region

Studies show that microgrids are economically

viable for commercial and industrial customers

ranging in size from 4–40 MWs and universities

ranging from 2–40 MWs

Example:

All 23 of the California State System

campuses have some form of a microgrid; four

plan to upgrade

Definition: A group of interconnected loads and distributed energy resources within

clearly defined electrical boundaries that acts as a single-controllable entity with

respect to the main grid

9

Microgrids: An Overview

Description

A microgrid can connect and disconnect from the

grid to enable it to operate in grid-connected or

island mode. In island mode, the microgrid neither

draws power from the main grid nor supplies power

to it

Microgrid configurations are based on the number of

end users, real estate parcels to be served,

ownership of real estate parcels, and whether

infrastructure crosses a public street

Consumer base has traditionally been university

campuses, military bases, and municipalities for

mission critical needs

According to Navigant Research, as of April 2013,

North America has 1,459 MWs of microgrid capacity

online and more than 1,122 MWs in the

planned/under development or proposed phase

By 2020, capacity is projected to be 5,973

MWs

The institutional/campus segment is the largest

sector for microgrids globally


10

Distributed Generation

Observations

Net metered systems are examined to understand trends in distributed

generation

Driven by strong deployment in a few states, the number of net

metered customers continues to grow steadily

In 2011, the residential sector accounted for 90% of net metered

customers and 39% of net metered capacity; commercial customers

accounted for 9% of net metered customers and 44% of net metered

capacity

California is a clear leader in net metered customers and capacity

In 2011, Arizona ranked first in the sale of excess energy, and

Massachusetts ranked a surprising second

Rank State

Capacity (MW)

% of U.S.

Total

1 California 1,192 44%

2 New Jersey 442 17%

3 Pennsylvania 146 5%

4 Colorado 137 5%

5 Massachusetts 79 3%

State Ranking by Net Metered Capacity, 2011

Rank State

Customers

% of U.S.

Total


2 New Jersey 12,959 6%

3 Colorado 12,654 6%

4 Arizona 11,450 5%

5 Hawaii 9,822 4%

State Ranking by Net Metered Customers, 2011

Rank State

Sale of Excess

Energy (MWh)

Percent of

U.S. Total

1 Arizona 118,983 47%

2 Massachusetts 58,394 23%

3 Nevada 15,350 6%


5 Hawaii 7,402 3%

State Ranking by Sale of Excess Energy, 2011

0

50,000

100,000

150,000

200,000

250,000

2007 2008 2009 2010 2011

Ne

t M

ete

red

Cu

sto

me

rs

Industrial

Commercial

Residential

Net Metered Customers by Customer Class, 2007–2011

3-Year CAGR: 48%

5-Year CAGR: 46%

Note: Net metering data represents systems with nameplate capacity of 2 MWs or less.

Sources: EIA, ScottMadden analysis


11

Implications for Utility Business Models

Disaggregated Supply and Demand

High penetration of distributed generation (combined heat & power and renewables)

Emergence of microgrids

Customers driving the “discussion”

Traditional Vertically Integrated Utility

Focus continues on central station generation, long-haul transmission

Technology initiatives focus on improving the existing integrated system

May see reduced loads due to energy efficiency and distributed resources but customers remain

Utilities driving the “discussion”

High Low

Drivers

High cost/kWh, favorable policies

Customer requirements (cost, reliability, “green-ness”)

Regulatory “enticements” (subsidies for certain resources, net metering)

Controlled centrally,

one integrated system

Control is dispersed, many

systems loosely tied

Increasing change and complexity

Not all utilities will face the same pressures in the same timeframe;

they will focus on different types of infrastructure in the near term.


Contributing Factors

ScottMadden believes that several factors will contribute to a region’s attractiveness for

alternative supply sources:

Electricity rates

Net metering and interconnection policies

Prevalence of and policy toward solar and third-party providers

RPS carve outs for solar

Where Will Utilities be Most Impacted?

12


Average Retail Electricity Prices (2012)

Contributing Factor:

13

6.5 cents to 8 cents

8.01 cents to 9.5 cents




DC

Source: U.S. Chamber of Commerce, Institute for 21st Century Energy

2012 Average Retail Electricity Prices (Cents/KWh)


Net Metering

Contributing Factor:

14

43 jurisdictions have

net metering rules,

which allow the sale

to the local

distribution utility of

excess distributed

generation output

The ability to

monetize this extra

power provides

additional financial

benefits to distributed

generation

As shown, the Mid-

Atlantic, California,

and parts of the

Mountain West have

more distributed

resource-friendly

policies

Note: *Relative rankings are based upon the following factors: system capacity (accommodates broader and larger DG capacities); higher total program limits (caps); lenient

“rollover” provisions that allow more excess electricity (vs. consumption) to be rolled over to future months and credited then; less onerous-metering requirements;

customer ownership of renewable energy credits (customer ownership is better); range of eligible technologies (broader is better); customer class eligibility (less restrictive

is better); permissible aggregation (aggregation is better); community-shared renewables (shared is better); additional fees (safe harbor protecting against fees is better);

types of utilities applicable (all types are better); third-party treatment (third-party PPA permission is better).

Source: Interstate Renewable Energy Council, “Facing the Grid: Best Practices in State Net Metering Policies and Interconnection Procedures,” November 2012

A

B

C

D

F

NA

Relative Ranking*

Better

State Grading of Net Metering Policy

Encouraging Customer-Sited Generation (as of Late 2012)

Puerto Rico


15

Prospects for Distributed Resources

0–2

3–5

6–8

9–11

12–14

Map Score

Better

Sources: ScottMadden analysis; inputs from DSIRE, IREC, American Council for An Energy-Efficient Economy;

U.S. Energy information Administration; and other sources

Where jurisdictions are “better” on more factors (e.g., easier interconnection; third-party solar PPAs

permitted; net metering; lower differential between utility-supplied power and installed solar PV), they

scored higher on the map

The states that score highest are most likely to a significant influx of distributed resources


What Does This Mean?

What Should Utilities Do?

Area of

Concern Implications For Consideration

Strategy The utility will face

competition and

possibly loss of

revenue

What business(es) should we be in?

Is there an opportunity to become the “single

point of contact” to the customer?

Financial Customers are using

less electricity or self-

supplying

Does decoupling make sense?

How should we address net metering?

Is there a need for alternative rate structures?

Real Time

Operations

Operators will be

challenged to see and

operate new resources

How should visualization in operations be

expanded?

In an RTO environment, who works with the

alternative providers? In a non-RTO

environment?

System

Planning

Traditional utilities plan

for central station

generation, long-haul

transmission

How do our models account for non-traditional

resources?

How should we address spatial and temporal

questions?

Stakeholder

Management

Customers may have

various new “energy

providers”

How do we work with all our new and existing

stakeholders?

What is our strategy?

19


Its Complicated…

System planning will become more complicated

Regional differences will become more acute

Transmission planning may need to consider the availability of different types of resources

Load forecasting may change or need to become more granular

Location and timing will matter more and more as the system is assessed

Operation of the grid requires more sophisticated visualization and tools

Visualization of myriad resources will become important in areas of high penetration

Utilities, RTOs, and ISOs will need to consider these resources as they manage the real-time

environment

Transmission owners and operators will have to work with many more parties to manage

the grid

The shifting business model has opened markets to new participants

What Do These Changes Mean for Transmission?

17

Transmission owners and operators are being pulled in two directions:

integrate utility-scale renewables and accommodate distributed resources


In Summary

We are living in a world of:

Declining demand growth

A shift away from coal

A move toward renewables

Increasingly distributed resources

We need to think hard about:

Meeting the reliability needs of the system with new participants and resources

Integrating both large and small scale resources to ensure reliability

18


Cristin M. Lyons

Partner

ScottMadden, Inc.

2626 Glenwood Avenue

Suite 480

Raleigh, NC 27608

[email protected]

O: 919-781-4191 M: 919-247-1031

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