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 Landline and cellular Bills phone services Electric Apps 80% 20% 20% Consumable Durable Internet Household appliances, access 10% therapeutic medical 12% equipment, telephone and facsimile equipment, electric appliances for personal care Repair of household 2% appliances, audio-visual, and computer equipment 11% 13% Cable and satellite Television, audio, and television, radio services, 12% video equipment video media rental Personal computers, software, and accessories Source: Bureau of Economic Analysis Gross Domestic Product Survey.

National Response Event Framework • Provide general NRE oversight • Resolve issues identified by the NREC EEI CEOs • Interface with industry and government partners • Initiates the NRE and resource allocation process • Manages the issue resolution process National Response Executive • Reports to the EEI CEOs Committee (NREC) • Chair co-locates with EEI during NRE • Conducts the resource allocation process • Consists of representatives from each RMAG and EEI’s Mutual National Mutual Assistance Assistance Committee Resource Team (NMART) • Lead co-locates with EEI and NREC Chair during NRE • Maintains baseline resource availability information • Gathers and consolidates participating utility information in Regional Mutual Assistance support of the allocation process Groups (RMAGs) • 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 Leadership – 1 Chair, 2 Vice 3 Chairs Electricity Subsector Coordinating Council Steering Committee – NIAC (ESCC) representative, APPA, CEA, 9 EPSA, ISO/RTO Council, NEI, 30 member body to serve as the principal entity NERC, and NRECA coordinating with government counterparts on planning, preparedness, resilience, and recovery issues related to national security issues affecting the electric grid. Asset Owners – CEOs proportionally representing 18 asset owners from across industry segments Electricity Subsector Information Sharing and Analysis Center (ES-ISAC) Day-to-day operations run by NREC

ESCC Coordination Responsibilities Electric Sector • Utilities • Trade Associations • ISOs and RTOs • North American Electric External Reliability Corp (NERC) • Information Sharing and Government Groups Analysis Center (ISAC) • Spare Transformer Equipment • Federal Agencies Program (STEP) • Other critical sectors • Regulators • Vendors • Law Enforcement • Critical customers • State & Local • Media Electricity Subsector Coordinating Council (ESCC) Coordination Resource Allocation Conflict Resolution • Security to support restoration • Equipment, hardware, and materials • Investigation versus restoration • Media and public affairs • Human resources and expertise • Prioritization of recovery messaging • Distribution of limited resources • Logistical support, staging

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.

Public Policies Are Spurring DER Adoption 43 States Have Net Metering + 17 States Have DG/Renewable DG Goals State Renewable Policies State Net Metering Policies Source: EIA

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

Background – Residential Distributed Energy (DE) Growth 47MW $3.00 44MW $2.50 $2.00 23MW $1.50 19MW 15MW $1.00 $0.50 375MW Total DE out of a 7000MW peak $0.00 2009 2010 2013 2011 2012 Incentive Step-down Estimated Capacity • 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%)

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, CO 2 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