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WECC Long-Term Planning Scenario Report

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WECC Scenarios

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WECC Scenarios


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155 NORTH 400 WEST • SUITE 200 • SALT LAKE CITY • UTAH • 84103-1114 • PH 801.582.0353 • FX 801.582.3918

WECC Long-Term Planning Scenario Report

In support of the Regional Transmission Expansion Planning Project


Scenario Planning Steering Group

Western Electricity Coordinating Council

March 29, 2013

March 18, 20134


155 NORTH 400 WEST • SUITE 200 • SALT LAKE CITY • UTAH • 84103-1114 • PH 801.582.0353

Table of Contents

Introduction1Scenario Background1Focus Question for the Scenarios2A Consistent Set of Key Drivers of Change3Key Scenario Drivers, Predetermined Elements and Uncertainty3The Organizing Scenario Matrix4The Organizing Scenario Matrix5Point of View of the Scenarios6Policy Implications for the Scenarios6Modeling and the Transmission Planning Results for the Scenarios8Scenario One: Focus on Economic Recovery9Key Scenario Metrics in 2032:9Beginning Years: 2013-2017/The Dark Before the Dawn10Middle Years: 2018-2022/A New Day Dawning15Final Years: 2023-2033/A Bright New Day18Scenario One - Overview by Key Driver22Scenario One – Overview of Modeling Parameters26Scenario One - Policy Themes29Scenario Two: Focus on Clean Energy31Key Scenario Metrics in 2032:31Middle Years: 2018-2022/Tension Passing Through the Inflection Point Toward Sustainability37Final Years: 2023-2033/The Lumpy Implementation of the Advanced and Clean Technology Power Industry43Scenario Two - Overview by Key Driver47Scenario Two – Overview of Modeling Parameters50Scenario Two - Policy Themes52Scenario Three: Focus on Short-Term Consumer Costs54Beginning Years: 2013-2017/The Doldrums Don’t End55Middle Years: 2018-2022/Struggling to Get on Track57Final Years: 2023-2033/Same as it Ever Was59Scenario Three - Overview by Key Driver63Scenario Three – Overview of Modeling Parameters66Scenario Three – Policy Themes69Scenario Four: Focus on Long-Term Societal Costs71Beginning Years: 2013-2017/The Rise of Smart Energy72Middle Years: 2018-2022/The Age of Self-Sufficiency77Ending Years: 2023 to 2033/The Re-Optimization of Electric Power79Scenario Four - Overview by Key Driver82Scenario Four – Overview of Modeling Parameters86Scenario Four - Policy Themes88Using the Scenarios for Long Term Thinking and Early Indicators90Long-Term Use of the Scenarios90Early Indicators for Long-Term Transmission Planning92Early Indicators for Scenario 1: Focus on Economic Growth92Early Indicators for Scenario 2: Focus on Clean Energy93Early Indicators for Scenario 3: Focus on Short-Term Consumer Costs94Early Indicators for Scenario 4: Focus on Long-Term Societal Costs94Appendix I: Scenario Narrative EPS95Scenario 1:95Scenario 2:95Scenario 3:96Scenario 4:96Appendix II: Comparative Scenario Summary98Appendix III: Policy Theme Table99Appendix IV: Annotated Policy Theme Table101

WECC Scenarios

WECC Scenarios

Page 1 of 6March, 2013



This report presents the final version of long-term planning scenarios created in support of the Western Electric Coordinating Council’s (WECC) Regional Transmission Expansion Planning project (RTEP) funded partially by a United States Department of Energy (DOE) contract awarded to WECC in 2009 as part of the American Recovery and Reinvestment Act.

These scenarios incorporate input, ideas, and recommendations that the Scenario Planning Steering Group (SPSG) provided Reos Partners during and between workshops held in Salt Lake City, Utah, on May 23rd, 2011, July 11th-12th, 2011 and December 12th-13th, 2012. This report is therefore a draft revision of the scenarios, which were first completely presented in the draft report issued in October 2011, with subsequent revisions to incorporate policy guidance in March 2012.

These scenarios are the qualitative basis from which quantitative inputs were developed by the SPSG’s Metrics Data Task Force (MDTF) during 2012 to feed into the Study Case Development Tool (SCDT) and the Network Expansion Tool (NXT). The first draft of these scenarios was used in an iterative fashion to develop the quantitative modeling inputs and refine the arguments and ideas included in these final scenario narratives. The SCDT and NXT are the basis for generating alternative transmission expansion plans for the WECC region so that a wider range of possible developments might be considered in WECC transmission planning. The transmission planning results of the modeling of these scenarios are more fully presented in the report by WECC staff, which contains the 20 Year TEPPC Planning Results.

Scenario Background

Scenario-based planning is a technique for managing uncertainty in decision making. It is especially useful when long-term investments must be evaluated despite the human inability to accurately predict the future. Scenarios offer a tool for imagining plausible and well-researched futures and thereby enable planning across a wider range of potential futures. When used well this approach can spur learning and help in identifying emerging risks and opportunities.

Scenarios cannot take into account all aspects of the complexity of interrelationships and interdependencies of the real world. However, scenarios are a powerful tool for sensitizing decision makers to emergent key factors, which can influence the outcome of their decisions. When used as a tool for guiding long-term capital decisions, scenarios can help managers to more effectively assess both the timing and scale of investments. They can also provide the time needed to create alternative financing and risk management options. It is in that manner that these scenarios have been prepared and used by WECC and its stakeholders in the transmission planning process.

These scenarios emerged from a series of workshops lead and facilitated by consultants from Reos Partners under contract to WECC. The Reos team facilitated several phases of work in a comprehensive scenarios analysis process working with and under the guidance of the SPSG and WECC staff. Phases of this work included: (1) Scenario-planning workshops to create the scenarios; (2) The creation of an on-going research process which allowed SPSG members to contribute useful information on energy industry developments to an on-line database (the Event/Pattern/Structure system[footnoteRef:1]); (3) Facilitation of webinars to share and discuss ongoing research; and (4) Participation in task forces which developed metrics and policy ideas for the overall project effort. Archived information and related work products from this process are available on the WECC website in the section dedicated to the SPSG. [1: It should be noted that EPS submissions have been integrated into this version of WECC scenarios. In each scenario, there are a few underlined blue hyperlinks which link to the relevant EPS submission on the SPSG website. Double-clicking on the EPS link will take you there.]

The scenarios are based on the following key structural elements: (1) An anchoring “focus question” for all of the scenarios; (2) A set of “key drivers” representing trends and factors that must be reflected in all of the scenarios; and (3) An organizing matrix structure based on two highly uncertain and very important key drivers. Each of these is described in this report.

Focus Question for the Scenarios

Scenario planning, as a tool for managing future uncertainty, enables stakeholders to create and test strategic responses given a diverse range of plausible future conditions. Good scenarios are based on a clear enunciation of the decisions and uncertainties at play: The “focus question” that ensures scenarios are developed with a clear sense of the issues at hand. The SPSG agreed on the focus question detailed below.

Chart 1: Focus Question to Anchor the Revision of the Current WECC Scenarios

It should be understood that power supply in the context of the focus question of the scenarios includes approaches other than building new generation, including investment in energy efficiency and demand-side management.

A Consistent Set of Key Drivers of Change

While scenario analysis does not allow accurate predictions of the future, it does provide a tool for rigorously imagining alternative possible futures in which important decisions may play out. The most useful scenarios derive these imagined futures from a studied consideration of factors and trends (“key drivers”) that will most likely and powerfully influence future conditions.

Key Scenario Drivers, Predetermined Elements and Uncertainty

To imagine and plan for the evolution of electric power markets and related needs for transmission in the WECC region, the SPSG agreed to develop long-term scenarios using the following list of key drivers:

1.) The evolution of regional economic growth in the WECC Regions

2.) Technological innovation in electric supply technology and distribution systems

3.) The evolution of electric demand in the WECC Regions

4.) The evolution of electric supply in the WECC Regions

5.) Changes in the regulation of electric power systems in the WECC Regions

6.) Changes in federal regulation affecting the electric power industry

7.) Changes in social values related to energy issues

8.) Changes in society's preferences for sustaining environmental and natural resources

9.) Shifts in national and global financial markets

10.) Shifts in the availability and price of commodity fuels used in the electricity sector.

After each of the four scenario narratives a table summarizes how each of the ten key drivers play out in that particular scenario over the twenty-year period. These tables can be used to compare how the drivers differ between the scenarios. Appendix II in this report provides a more comprehensive short-form comparative analysis of the scenarios using the driving forces.

Within the key drivers above there are predetermined elements and high degrees of uncertainty. Predetermined elements are issues that clearly exist in the current environment, which will, by necessity, have a role in how the future unfolds in any scenario. In the WECC scenarios this includes things such as: (1) The implementation of FERC Order 1000 and its impact on regional planning; (2) Ongoing public deliberations and policy formation related to climate change; (3) Improvements in energy efficiency across the economy driven by the current pace of technological improvements and government mandated standards; and (4) The meeting of RPS standards in power generation investments throughout the WECC region.

Those elements and other factors, as they are implemented within the time frame of the scenarios, remain uncertain. The scenarios are a tool for using imagination and analysis to give a range of possible roads the key drivers, in combination, may take. Scenarios in this sense are not, and cannot be, accurate predictions of the future, but serve as useful, diverse and challenging futures with which to assess uncertainty. With the modeling results, this uncertainty can be analyzed in depth in terms of their impact on transmission planning in the WECC region. By thinking through those results, their insights and the additional questions that arise, we establish a holistic process for managing uncertainty.

The Organizing Scenario Matrix

A “scenario matrix” is a tool for organizing and distinguishing ideas during the creation scenarios. To create a matrix, the key drivers are first prioritized using the consensus or majority vote of a team to select the two drivers that are simultaneously most uncertain and most important. Additionally, the top two drivers should be independent of one another. These two drivers are then ascribed a range of uncertainty, represented as an arrow with ends pointing in opposite directions to indicate polar extremes. Crossing these arrows creates four quadrants that function as “scaffolding” for developing distinctive scenarios.

After due consideration, the SPSG selected “technological innovation in electric supply and distribution” and “economic growth in WECC regions” as the two most important and most uncertain drivers. The resulting matrix and ranges of uncertainty are shown on the next page. It provides a starting point from which to create distinctly different worlds and a way to integrate the other drivers into a narrative structure. It has been revised in this report to show the final narrative titles for the scenarios.

The Organizing Scenario Matrix

Chart 2: WECC Transmission Scenario Matrix

The revised scenario narratives in this report are the final stories that describe very different future “worlds” or contexts for future WECC transmission decisions. The organizing scenario matrix is a conceptual device in which the future can be explored within distinct quadrants as well as by moving among the quadrants over time. The matrix serves as a sophisticated tool for distinguishing, at a glance, the major differences and starting assumptions in the imagined worlds. Movement among the quadrants to represent a plausible evolution of future conditions is discussed later in this report in the section on Early Indicators.

Point of View of the Scenarios

The scenarios are written from the point of view of a neutral observer (similar to a newspaper reporter) explaining the future as it is unfolding. In addition to the events and trends playing out in relation to the key drivers, the observer identifies the actions of four key stakeholder groups: (1) Regulators and legislators; (2) Companies in the electricity industry (investor-owned utilities, power plant and transmission system owners, operators and developers); (3) Activists and advocates for various causes, especially the environment; and (4) Electric energy consumers (residential, commercial, industrial and agricultural). Since this is an exercise in storytelling, different stakeholders may be active or dormant in particular timeframes in each of the scenarios.

Policy Implications for the Scenarios

Three of the key scenario drivers can be considered to be policy changes: (1) Changes in regulation of the electric power systems in the WECC region; (2) Changes in federal regulation affecting the power industry; and (3) Changes in society’s preferences for sustaining environmental and natural resources. Policy is rightly a very broad term so changes in policy can affect an even wider range of areas. Policies are critical because they set the rules, regulation, laws, and context for risk assessments affecting decisions about important matters, especially large capital investments, in the energy business. Policies allow the democratic process to exert influence on energy industry decisions so as to ensure they align with the desires and values of society. Clearly, policy shifts over the next decade or more can have a powerful effect across the electric power industry and thereby heavily influence generation and transmission investment decisions.

In addition, the SPSG created the Policy Development Task Force (PDTF) to explore further how other policies might affect the evolution of the WECC scenarios. The work of the PDTF also has been captured in the scenario narratives, as well as in the scenario modeling metrics.

In order to give additional coherence to such a broad area as policy and to give some indication of how they might evolve, each scenario attempts to reflect an evolution of events that are roughly consistent with the overall policy themes. These themes signify the overall context through which policy changes may arise and also indicate a predominant direction. The policy themes for each scenario are shown on the next page.

Chart 3: Policy Themes by Scenario Matrix

Following each of the scenario narratives is a chart, which indicates the general direction of change in policy areas. This change is consistent with the ideas and trends in the particular scenario. Those directional indicators of change will also be the basis for making modifications from a set of common case assumptions used to create quantitative analyses of the scenarios. Importantly, the overarching policy context of each scenario was used in the planning process by the Metrics Data Task Force to change quantitative variables in the Reference Case assumptions used in the 20-year modeling process using the SCDT and NXT. Those changes in the quantitative variables were best guess and consensus estimates from the MDTF based on their professional expertise, and in some cases, tied to research analyses referenced in the EPS system. In light of this work, the policy ideas were given real economic power in the modeling to change outcomes in transmission plans.

The policies in each scenario have been placed in one of five categories: (1) ‘++’ = Most aggressive; (2) ‘+’ = Aggressive; (3) ‘0’ = neutral; (4) ‘-’= Aggressive in the opposite direction; and (5) ‘– –’ = most aggressive in the opposite direction. Appendix III and Appendix IV provide further detail on the indicators and their influence within the scenarios.

Modeling and the Transmission Planning Results for the Scenarios

As mentioned earlier, WECC staff will be discussing with stakeholders the results from long-term (20-year) study cases based on these scenarios, as well as the results of other study cases, as a basis for creating alternative 20-year transmission plans in addition to the WECC Reference Case. Following each scenario narrative is a placeholder for high-level summary of those transmission-planning results. A comparative analysis of the transmission planning results and suggestions about key factors, which impacted the differences, will follow the scenario narratives. Appendix V of this report includes a comparative analysis of those results.

Scenario One: Focus on Economic Recovery

Wide-spread Economic Growth in WECC Region with Increasing Standards of Living and Evolutionary Changes in Electric Supply and Distribution Technology

This is a world in which an initially slow uptick out of recession is followed by rising economic growth in the WECC region. Happening in concert with a steady pace of incremental rather than breakthrough technology improvements in the power sector this growth supports the emergence of the next generation power system for the region—one which is more efficient, flexible, responsive to customers, and takes full advantage of a spreading smart grid. After a period of international financial instability, the U.S. economy with more growth is back on a more solid fiscal foundation with the restructuring of the national debt leading to the implementation of new tax and fiscal policies. The U.S., with its growing population, entrepreneurial culture, and ability to develop advanced technologies, helps to bring the global economy back into balance.

A steadily improving economy drives increasing electricity demands from consumers and expanding businesses and industries—both large and small. In the early years, natural gas meets this demand as increasing supplies keeps domestic prices low. As the last decade unfolds however, there is a major shift towards renewables driven by a robust regional electricity market facilitating the integration of renewables, and increasing environmental concerns about land and water use and air quality. Continued concern about climate change leads to efforts to reduce CO2 emissions and culminates in a federal energy policy, which includes a national carbon tax. These changes contribute to economic growth as they trigger innovation, revitalize markets and drive new investment.

Even without game-changing breakthroughs, the energy sector is a primary beneficiary of the prowess of the U.S. in both technology development and entrepreneurial vigor and provides a solid basis for overall economic growth for the nation. The WECC region, home to some of the nation’s best educational and financial management institutions, leads the long-term positive evolution of the nation’s economy.

Key Scenario Metrics in 2032:

Natural Gas Price = $10.00

Cost of Carbon = 2032 Reference Case value: $37.11

Policy Adjusted Peak Load Growth Rate* = 1.9% (2032 Ref Case = 1.5%)

Policy Adjusted Demand Growth Rate* = 1.6% (2032 Ref Case = 1.2%)

* Adjusted for known electrification, DSM and energy efficiency policies included in the modeling results

Beginning Years: 2013-2017/The Dark Before the Dawn

The big events and issues shaping the electric power sector in the WECC region in early 2013 can be summarized in six key areas: (1) The impact of and slow recovery from the 2008-2009 credit crunch and follow-on recession; (2) A growing concern among voters and their representatives about both the short-and-long-term effects of climate change, yet with no political consensus to act nationally or globally; (3) A rapidly emerging concern about the long-term availability and usage of fresh water; (4) The growing investment in renewable energy technologies to meet renewable portfolio standards (RPS); (5) Organizing and implementing energy imbalance markets (EIM); and (6) The impacts of implementing FERC Order 1000.

Those six issues make investor-owned utility managers nervous about their future opportunities in serving long-term demand growth, as well as where and how to invest in new assets. Activists and advocates for protection of the environment (including clean-tech investors) promote balanced financial and regulatory support to sustain and accelerate investment in clean energy technologies. Even though there is a general acceptance of and some enthusiasm about clean energy technologies, most are still not quite cost competitive with the traditional sources of power. Improvements are needed in some of their performance areas. Innovations are coming, as seen in labs and pilot projects, but further steps will be needed as those new options are implemented more widely and integrated into existing power systems (See Figure 1.1 below on the challenges of impactful innovation).

Legislators and regulators have a delicate dilemma on their plate: How to continue progress toward a cleaner and more sustainable power system without imposing high and quickly escalating energy costs and unnecessary risks on consumers and industry. Additionally, these advancements must not harm economic growth or job creation.

Figure 1.1: Technology: An Economic Growth Driver

“Innovation Pessimism: Has the Machine Broken Down?” The Economist, January 12 2013

Although the boom times are back in Silicon Valley, it may come as a surprise that some in Silicon Valley think the place is stagnant, and that the rate of innovation has been slackening for decades. And a small but growing group of economists reckon the economic impact of the innovations of today may pale in comparison with those of the past. Some suspect that the rich world’s economic doldrums may be rooted in a long-term technological stasis.

Economists divide growth into two different types, “extensive” and “intensive”. Extensive growth is a matter of adding more and/or better labour, capital and resources. Intensive growth is powered by the discovery of ever better ways to use workers and resources, and economists label the all-purpose improvement factor responsible for such growth “technology”.

Technological progress does not require all technologies to move forward in lock step - merely that some important technologies are always moving forward. Innovation and technology, though talked of almost interchangeably, are not the same thing. Innovation is what people newly know how to do. Technology is what they are actually doing; and that is what matters to the economy.

Although the economic impacts of technology lag investment in the technology, there may be reason for optimism as we are just entering the period where the exploitation of recent technology innovation (e.g., information & communications technology) will begin to have a significant impact on economic growth.

In these early years, federal and state policies concentrate on economic growth. Though the U.S. economy continues on the positive growth trajectory that began in 2012, big challenges must be resolved. The financial crises in the European Union, especially in Greece, Spain, and Italy, as well as the political battles over how to reduce the U.S. deficit, dominate the headlines. There are concerns that the European Union could implode from within, as austerity programs do not prove effective. Pundits, investment analysts, and global finance experts all publish nightmare scenarios that contribute to the overall sense of gloom.

The optimistic news from the U.S. housing market, increased job growth and lowering rates of unemployment are all offset with news of conflicts in the Middle East rattling oil markets. Oil prices, now above $100 per barrel, have only small effects in the U.S. as oil consumption continues to decline, yet constrains economic growth outside the U.S. as global consumption increases. Despite ongoing monetary interventions by European Union finance ministers, there are fears the ongoing debt crises in Portugal, Spain, and Greece look like might lead to further economic contraction in Western Europe. Europe lags well behind the U.S. and Asia in terms of economic growth and continues as a drag on the global economy.

President Obama’s re-election in 2012 provided a degree of hope that Congress and the Obama Administration would collaborate to address the fundamental problems of the U.S. economy. This notion of political harmony proves ephemeral as changes in tax policies as well as debt reduction are spread out over several years. The benefits come slowly, and while helping parts of the economy, the extended uncertainty about policy restrains broad economic growth both in the U.S. and globally. Voter frustration with the political gridlock results in an attitude shift towards candidates running for state or federal office in 2014 and 2016 towards those more willing to collaborate on solving the nation’s economic ills. However, in general, policies supporting a balanced approach to economic growth gain wider support.

By 2017, actions for effective regulation and the restructuring of the national debt leads to the implementation of tax and fiscal policies geared toward reestablishing middle class growth and supporting small businesses development. Economic growth is the primary focus of policymakers in Washington, D.C. and the states in the Western Interconnection. These actions coupled with economic growth in Asia, particularly China, India and Latin America prevents a return to recession.

Economic growth in the WECC region happens in fits and starts. Those western states and provinces with strong natural resource and agricultural sectors enjoy higher growth in the early years than the ones focused on high technology, defense and tourism. California, along with the Pacific Northwest, British Columbia, and Alberta are more closely tied to the global economy and need global growth to support their industries. The western states as a whole are able to take advantage of renewed growth in Asia and Latin America because of their emphasis on exports and international trade.

Electric power technologies are part of these globally focused industries, and companies in the WECC region lead the wind and solar power sectors, and are better able to integrate technology innovations. Companies in the Silicon Valley develop the software and services necessary to implement and run an optimized/smarter grid. Regulatory policies and state incentives enable utilities to start to implement innovative products and services. These domestic markets support companies that can produce and export technologies that will reshape the power business.

Western utilities and other energy companies continue their development of improved solar and wind technologies, including offshore, dispatchable, and low-speed wind generation. They pioneer investments and activities leading to more energy efficiency and overall conservation. Significant potential remains in this space for new and dynamic innovations.

While renewable portfolio standards combined with state and provincial tax incentives have stimulative impacts, demand growth remains the single largest driver for new investment in the energy sector. In the short term, due to slowly improving economic conditions and slower power demand growth because of more energy efficiency, power companies see limited opportunities. As a result, some new plant construction slows and some planned transmission expansion is put on hold.

As events unfold, optimism about the long-term potential of the U.S. economy proves to be accurate—albeit after some really tough early years. Power sector investments centered on technology eventually come to market. These technologies, which had started with a few utility systems both before and during economic stagnation, transform the power sector into a more efficient, flexible, and customer-responsive business. Previously announced coal plant retirements proceed without delay as the EPA continues its push for cleaner air quality. New sources of demand appear on the horizon as economic growth accelerates, companies large and small expand and consumer spending rebounds (See Figure 1.2, even with growing energy efficiency, absolute growth in demand is important).

Figure 1.2: Share of Energy Used by Appliances and Consumer Electronics Increases in U.S. Homes

“Share of Energy Used by Appliances and Consumer Electronics Increases in U.S. Homes,”

Residential Energy Consumption Survey (RECS), U.S. Energy Information Agency

Over the past three decades, the share of residential electricity used by appliances and electronics in U.S. homes has nearly doubled from 17 percent to 31 percent, growing from 1.77 quadrillion Btu (quads) to 3.25 quads.

This rise has occurred while Federal energy efficiency standards were enacted on every major appliance, overall household energy consumption actually decreased from 10.58 quads to 10.55 quads, and energy use per household fell 31 percent.


Long-term planning to meet this potential demand centers on the balance of fuels. Despite environmental concerns, the U.S. allows increased drilling and production of oil and natural gas using hydrofracturing (“fracking”)[footnoteRef:2] driving natural gas prices lower and quickly increasing supply (with a side benefit of driving electricity demand through the electrification of fracking fields). At the same time, gas turbine manufacturers continue to improve gas-fired turbine efficiency adding increased flexibility in following load demand and shaping wind generation. [2: The process of using a fluid to create cracks in sedimentary rock and a proppant (small solid) to hold open the crack, releasing trapped oil and gas.]

Variability and uncertainty of wind and solar energy requires flexible and reliable power sources to maintain reliability standards. Natural gas plants can be brought on line relatively quickly when demand spikes and can serve as replacements for retiring coal plants. Natural gas is abundant in the United States, so using it does not hurt the nation’s trade balance and provides domestic jobs. Natural gas quickly becomes the “fuel of choice” for both new and replacement generation. The challenges for natural gas include the uncertainty of continued long-term supply from shale gas, the long-term potential for price volatility, the need for new transmission and delivery infrastructure, and public concerns about air and water pollution resulting from the use of fracking technology.

Renewable energy and environmental activists and advocates focus on three concerns: (1) The environmental impacts of fracking used for oil and natural gas production; (2) Curbing greenhouse gas emissions that contribute to climate change, and (3) The effects of extreme weather events, particularly the continuing severe drought in the western U.S., which leads to additional application of dry-cooled generation. These issues become more pressing as the U.S. moves towards “energy independence” through domestic oil and gas production.

Land use and endangered species are part of the discussions about transmission system expansion. The public, well informed about these issues, continues to support policies protecting the natural environment despite continued uncertainty about the economy. When both technological innovations and careful public involvement in project development are key aspects of system expansion, there’s support for moving new technological solutions into the market. Even without federal pressure, some states are continuing to pursue clean energy solutions in direct response to voters’ demands.

Policy makers understand the long-term planning challenges in this period of economic recovery period along with changing dynamics within the power system. As part of their responses to FERC 1000, public utility transmission providers publish a white paper on Balancing Authority (BA) consolidation, which serves as a framework for institutional changes in the WECC region, including tighter planning coordination.

As 2017 comes to a close, an uncertain US economy continues to slowly pick up momentum, while the WECC region maintains an annual economic growth rate of 2.5%. Population growth within the WECC region’s population coupled with continued economic growth increases energy demand placing new pressures on the electric grid. As a result, utilities will have to increase generation and distribution in the coming decade. Most utilities initiate processes to allocate the capital for the IT infrastructure upgrades necessary to create, implement, and take advantage of the long-discussed grail—the “smart grid.” (See Figure 1.3 on the challenges of smart grid growth).

Figure 1.3: The Smart Grid” at a Crossroad

“Many of the smart grid projects that were announced in 2009 through early 2011 were funded by the Department of Energy, with American Recovery and Reinvestment Act grants. Since then, the level of activity has slowed down, for a few reasons. First, obviously we went through a boom phase with federal funding, and that boom is now gone. Decisions to cover costs for smart grid rollouts lie in the hands of state regulators. A number of states already decided to approve smart grid investments, and now we have a small trickle of states that are moving ahead. Illinois is one of them. But state regulators likely will pause and look at the utilities on the East Coast, Texas, Florida and the West Coast to see if utilities in those areas get the return on investment they expected, now the technology is working and what lesson are being learned. That will take 12 to 24 months. After that, we’ll see more states ready to take the jump and approve investments in smart grid.”

Source: January, 2013, Public Utilities Fortnightly, quote from Jack Azagury, of Accenture Corp.

“The Challenges of Big Data on the Smart Grid”, MIT Technology Review, July 2011.

Before the smart grid can become a reality, much less leave the infancy stage, utilities need to prepare for an onslaught of data - and not just a doubling or triple - but an increase of multiple orders of magnitude.

Currently utilities are hindered by old legacy IT that cannot deal with this data inflow - much less communicate effectively with each other - and they are upgrading very slowly.

The realization of the smart grid and all of the benefits will be delayed much farther into the future than most forecasts anticipate.

The technology is there; it only needs to be refined and standardized into easy-to-use applications so power companies can smoothly integrate them into their operations.

Middle Years: 2018-2022/A New Day Dawning

Pessimism does not last forever—even the Great Depression ended. In the early part of this period, economic growth in the western U.S. appears to be inconsistent with some areas accelerating while others still lagging. By 2022, the overall tide has turned with the return of a solid foundation of consistent, if not spectacular, economic growth—providing a long-needed boost just as the U.S. begins to rebuild its aging transmission infrastructure. As a whole, the WECC region is growing at a solid 2.75%. This turnaround’s foundation lies in the sizable decline of the U.S. federal budget deficit leading to lower long term borrowing cost for business investment and employment growth as a result of both exports and a more competitive U.S. manufacturing sector. With the demise of China’s long-term labor cost advantage, the U.S. accelerates exports of high-quality products that can only be manufactured with a more educated and productive labor force. These trends support a strong housing market and growth in consumer spending.

Newer industries, including biotechnology and information services, experience significant growth rates. The commercialization of three-dimensional computer chip technology kick starts the next “smart product” generation, which results in the proliferation of chip-based intelligence in almost every product. Clean energy technologies expand quickly, increasing their economic impacts as companies based in the WECC region start to produce and export more products resulting from their recent R&D spending. For these companies, geographic proximity to both domestic and export markets increases the overall global competitiveness of regional companies.

The energy sector contributes to job growth by increasing demand for distributed power systems and energy management services. Utilities start to build out smart-grid systems using new, more intelligent devices on both the demand and supply sides. Demographics, which are often underappreciated as an economic driver, start affecting the global economy. As a result of consistent immigration, the U.S. population grows, as is evidenced in the 2020 U.S. Census. The U.S. avoids the continuing population losses seen in Japan and most of the member states in the European Union. In combination with the ongoing recovery and population growth, renewed spending returns as consumers start to purchase big-ticket items including automobiles, appliances and electronics—items that were deferred by many during the last five years.

While Arab nations in North Africa and the Middle East are moving toward more democratic forms of government, this process proves to be both contentious and rife with uncertainty. Oil prices consistently hover above $120 per barrel based largely on global demand. Price spikes occur regularly because of political disruptions and violent outbreaks in the Middle East.

A combination of renewable energy, readily available domestic natural gas and oil, and energy efficiency and conservation provides a clear path for steady reductions in U.S. energy imports. Natural gas prices are only slightly impacted by both environmental regulations on fracking and increased demand from the electric power sector as production continues to increase. However, as the push for energy independence continues and new natural gas infrastructure comes online, there are growing concerns that the distribution system is now even more vulnerable to both natural disaster and terrorism.

Innovations in both electric supply and distribution systems emerge from renewed R&D spending—although no game-changing breakthroughs are on the horizon, a number of innovations are reaching a critical mass, including:

· Wave generation technologies make significant strides and are close to being market ready at competitive costs

· The first EGS (Engineered Geothermal System) comes on line in California and traditional plants experience better efficiencies

· Small scale modular nuclear plants are successfully demonstrated

· Solar DG at 100 KW scale and larger has reached grid parity (retail cost)

· Advanced battery solutions for energy storage and electric vehicles.

Supported by state and provincial energy policies, “grid optimization” emerges at the sub-regional level, including energy imbalance markets (EIM) and operations/commercial tools. There are still large gaps in the system, however: After a serious attempt by cyber-terrorists to collapse the nation’s electric grid and financial system in 2018 was narrowly averted, security of both the grid and infrastructure becomes paramount as Congress finally enacts a cyber security bill. The failed attack and the new regulations add momentum to the smart grid build out.

Global financial markets have absorbed and restructured the toxic debt that had so severely damaged credit markets. There were some significant bankruptcies and mergers, but, by this time, credit flows support both sound investment and home ownership. Money pours into the energy sector, as investors perceive it to be a secure industry. Sound economics drive good investments: Demand grows and is very likely to rise because of expansion in industrial and consumer product sectors. After five years of sluggish growth, electric-powered vehicles start to pick up market share due to lower costs and higher efficiencies of greatly improved battery systems (See Figure 1.4 on expected shifts in the transportation fleet).

Figure 1.4: Sales of light-duty vehicles using non-gasoline technologies by fuel type, 2010, 2020, and 2035 (million vehicles sold)

Source: DOE/EIA Energy Outlook 2012 (With Projections to 2035), Page 85, DOE, April 2012

In the WECC region, the reshaping of the electric power systems takes an “inside-out” approach. Installation of generation close to load now happens before power is shipped in via transmission lines. This means that forms of distributed generation, demand response, solar power, natural gas and energy management systems now dominate the market. The challenge with this approach centers on sudden spikes in demand and guaranteeing reliability. As a result, these systems remain connected to the grid to ensure reliability. Smart grid investments by early adopters in communities, high technology companies, and utilities accelerate.

With a steadily improving economy, public pressure on the power industry focuses on climate change solutions as well as other environmental concerns. Land use impacts of natural gas production, renewable energy installations and water scarcity lingering from the 2011-2016 drought (evidenced by additional dry-cooled generation) now merit continued public concern. As the nation grows both in terms of demographics and economics, there are more conflicts about the use of limited natural resources.

Tourism continues as a sizable industry in the WECC regions and land use, in particular the use of open and protected areas, sometimes conflict with energy system growth. A balanced approach in most instances allows important transmission and distribution systems investment to proceed, especially those bringing in power from renewable sources. State and provincial economies pursue environmental agendas, while federal policies are aimed mostly at fostering economic growth. Moderates and centrists maintain political power in many states and seek to balance both employment and economic growth with responsible stewardship of natural resources.

Electric power companies actively adjust to the new more distributed and self-contained power infrastructure, effectively and efficiently managing the data and information flows coming from the accelerated build out of the smart grid. Energy services evolve into many submarkets as consumers are segmented into levels and styles of service that will accommodate their different needs. Even so, many consumers continue to receive power the old-fashioned way.

There are many new players in the energy market, especially in the information sphere. Supporting this faster-paced aspect of the electric market are large corporations developing software and hardware options that allow smart energy businesses to provide quality services. The technology allows WECC to expand the sub-regional EIM region-wide and leads to more sophisticated energy trading and more effective cost management. This more connected system allows Native American Tribes and First Nations to develop and manage their energy-producing assets and activities and, as a result, receive financial benefits.

By the end of 2022, renewed confidence in the economy and financial systems as well as ongoing technology improvements provides a foundation for an economic renaissance and the long-overdue transformation of the electric power system in the WECC region.

Final Years: 2023-2033/A Bright New Day

The global recession of 2008-2010 is long forgotten. Global financial markets are completely restructured and sovereign debt is under control compared against what was the case during the global recession. With the positive resolution of the European Union’s problems, worldwide growth outpaces pre-recession rates, yet seems to be managed in ways to prevent a new “bubble” as lessons learned take effect. By 2032, annual economic growth in the WECC region has risen to 3.5%, thus recouping jobs lost in the recession. Plus, there are now enough new jobs to cover the needs from expanding industry sectors and steady population growth. The long needed national infrastructure rebuild and upgrades continue across the region, adding new jobs and expanding basic industries. The WECC region is once again the land of opportunity.

Even as the population ages population growth, though inconsistent across the region, outpaces the rest of the U.S. It’s strongest among the Northwest and Pacific coast states and provinces. In addition, retirees decide once again to move to Arizona and Nevada despite increases in temperature and water constraints.

Relations between the U.S. and Middle Eastern countries remain strained, though some stability emerges. This stability comes at a price, however, as many of the new democracies created during the Arab Spring sometimes pursue policies considered antithetical to the global economic interests of the U.S. Economic growth outside the U.S. is driven by China and India. This is critical due to the importance of exports to continued U.S. economic growth. Many of those exports support growth in the WECC region and thus demand for energy. High technology exports from companies in the WECC region are a big contributor to the revitalization of the U.S. economy during these years.

By 2032, the smart grid is spreading across the U.S. and Canada. This was enabled by standards and interconnection agreements between the two countries supported by states and provinces. The grid now “…intelligently integrates the actions of all users connected to it—generators, consumers and those that do both—in order to efficiently deliver sustainable, economic and secure electricity supplies…”[footnoteRef:3] [3: The Global Smart Grid Federation]

Taking advantage of improvements in information and communications technologies, including a new generation of computer chips, the grid now works in real time gathering and acting on information effectively. The grid does four things very well: (1) Ensures reliability; (2) Seamlessly integrates renewables; (3) Improves economics; and (4) Guarantees the sustainability of generation, distribution and use of electricity across North America.[footnoteRef:4] [4: The U.S. Department of Energy]

Traditional power companies, some of which still serve primarily rural areas, still sustain reliable service by having access to power resources beyond their peak demand. They maintain backup reserves that can be put into service quickly. What’s emerging in the improved more independent power system is one running much closer to its limits, albeit with much higher productivity.

Running a leaner system also helps to lower costs; however, when the limits are reached, there are new approaches in the provisions for back-up reserves. These new approaches now drive markets for energy storage technologies and smaller forms of clean, distributed generation. In fact, high-density DG areas are now significant enough to be considered “resource areas” for transmission expansion allowing production to be shipped outside of the DG local area. Over the past decade, improvements in storage solutions—pumped storage, compressed air, and advanced batteries—have solved the basic problem of storing electricity generated for both back-up reserves and off-peak demand. Solar and wind generation are also integrating improved technologies for energy storage.

The concept of a personal energy portfolio based on features like time-of-use pricing, special rates for electric vehicle charging, feed-in tariffs for solar power systems, and incentives for load management creates an array of possibilities for savvy consumers, both large and small. Some communities in the WECC region sign specialized deals with companies for clean energy projects for their local utilities.

Consumers quickly adapt to a new power system that provides them with more choices, even if they sometimes make a bad decision. Because the power system is cleaner and allows for more options, it’s viewed as a significant improvement in power services. Consumer surveys find a persistent desire for even cleaner systems and for more information on energy usage and conservation.

In an effort to spur further technology advances in the power sector and to meet growing demands to address climate change, a national energy policy focusing on costs, air quality, CO2 emissions and fossil fuel export policies, is enacted. The law has several new aspects: (1) An increase in energy efficiency standards; (2) Additional renewable energy requirements in utility generation portfolios; (3) A ($37/ton) carbon tax; and (4) An expansion through the use of incentives of the market for cleaner, more efficient, and smarter energy technology. At the national level, this law complements ongoing efforts to further reduce imports of oil.

In mid-decade the U.S. is close to real “energy independence", and as a result is well-protected against global oil and gas volatility. Driven by global demand and exhaustion of the best shale plays, natural gas reaches $10 in the U.S. With global demand on the rise and prices high, gas and coal produced in the WECC region is sent to new shipping facilities on the Pacific Coast for export to meet increased Asian demand—but with an additional export carbon tax to continue revenue generation and to be consistent with the new national energy policy.

As economic growth continues, a major shift away from fossil fuel-driven power takes hold. Over the last decade, as economic growth continues there is increasing public concern about the ongoing use of natural gas. Combined with the increasingly destructive effects of climate change, states are now beginning to consider new RPS.

Almost all new generation is renewable as clean energy technology improvements in EE (Energy Efficiency), EVs (Electrical Vehicles) and DG/DR reach critical mass. 20 years of continual improvements in solar, wind and geothermal technologies have brought them to cost parity with natural gas. Wind has displaced coal-fired plants in regions with less-than-ideal solar conditions, leading to additional coal plant retirements. Solar thermal is highly competitive on utility scale applications, and EGS is now commonplace where it makes economic sense. Both renewed efforts to reduce CO2 emissions along with commercial viability of small modular nuclear plants lead to increased use of nuclear energy. Renewables are the new “fuel of choice”.

As renewable generation now makes up over 20% of power generation in the WECC region, power utilities have a need to pursue improved ways to meet their reserves requirements. They need large amounts of power at the multi-megawatt scale to meet the balancing needs of intermittent renewable resources. Once again, natural gas-fired generation presents a strong alternative, in addition to evolving storage options associated with wind and solar power.

Despite all the changes, electric power still cannot be called cheap. Energy efficiency, demand-side management and conservation still pay, and consumers still want energy-efficient homes, buildings and equipment. Since buildings in the U.S. and Canada typically last about 100 years, retrofitting them becomes a larger segment of the conservation business.

As a result of the benefits from the movement to energy self-sufficiency, the U.S. reaches a tipping point in 2032 as the country becomes self-sufficient in all energy sectors, including transportation fuels. With national energy independence now in place, federal action can now spur more energy development, including an energy superhighway system in certain parts of the country. These DC lines connect resources to major load centers in major cities and urban areas. Cooperation with Canada and Mexico advances to building new interconnections utilizing the smart grid across the WECC region.

During these years, some Middle Eastern and North African governments, which had seen internal revolts, have now become working, though fragile, democracies. Individuals who once led these popular political revolutions have now become nationally-elected leaders within their societies. They now focus on trying to raise national standards of living while connecting to the global economy. With the huge natural endowments and capital resources from oil and other natural resources, several of these nations join the World Trade Organization. As a result, their citizens become more discerning consumers of global goods. These changes open up export markets for U.S. goods including many from companies in the WECC region.

Bringing people from developing countries into the global economy creates a “new China” in terms of boosting global economic activity. India surpasses China in annual rates of GDP growth, and Indonesia, with its large population, increases its international trading and resource exports. Companies in the WECC region look to these new markets for exports of their clean energy technologies.

As 2032 comes to close and the new decade begins, there are four pressing questions facing WECC energy markets in this world:

1.) Will there be greater ties between the US Interconnections (e.g., WECC/ERCOT, etc.)?Does that change our electricity costs and prices in the Western Interconnection?

2.) Should energy development be more centrally planned and implemented in the Western Interconnection and can the smart grid and a leaner system create sufficient economic benefits in this time frame without such a transformation?

3.) Has the US reached the correct balance between the need for clean energy to address climate concerns versus the need for continued economic growth?

4.) Will the land use implications of increased oil and natural gas development put constraints on resource choices?

New scenarios are needed…

Page 21 of 26March, 2013

Scenario One - Overview by Key Driver

Key Driver

Scenario Summary

The evolution of electricity demand in WECC region

The economy begins a slow but steady recovery, and coupled with continued population growth drives a return to electricity demand growth. High fuel prices drive incremental electric vehicle adoption.

The evolution of electricity supply in the WECC region

Renewables struggle to grow in early years, but new investment and coal plant retirements trigger a resurgence of development, renewable generation takes off in last decade with increased deployment of on-site generation and storage.

Innovation in electricity supply technology & distribution systems

Slow and incremental technology innovation in the sector is mirrored in new generation development and operational and communications improvements. Renewables innovations pick up in the later years. Increased technology innovation in gas-fired turbines continues to drive natural gas for new generation.

The course of regional economic growth in the WECC region

Growth in the early years remains slow, and leads the WECC states and provinces to enact legislation to support economic development. The economy picks up in the middle years, followed by growth in the later years.

Changes in the regulation of electric power systems in the WECC region

States and provinces continue to drive energy policy in early years. The WECC region begins to manage the power industry with better optimization of generation and transmission across the Western Interconnection.

Changes in federal regulation affecting electric power industry

The U.S. and Canada establish federal national energy policies to drive toward energy independence. A national energy policy is enacted, including a carbon tax.

Changes in social values related to energy issues

Consumer demand for customer-centric energy independence drives demands for energy-efficiency products, onsite generation and storage, etc. The public and investors begin to implement local community grids with clean generation.

Changes in society’s preferences for environmental & natural resources

Impacts of natural gas extraction cause states to look at increasing RPS standards. Centrist policies support reasonable energy infrastructure development leaning more towards renewables in the later years.

Shifts in national & global financial markets

Stabilization of financial markets following changes in deficit spending in the U.S. and other nations. Global financial markets return to normal credit patterns.

Shifts in the availability & prices of commodity fuels used in the electricity sector

Natural gas remains a clear choice for new dispatchable and replacement of coal fired generation in the early years.

Scenario One


Direction of Change2

Central Station Coal/CCS

Large-scale coal-fired power generation in the large megawatt scale needing transmission connections/with clean carbon sequestration.

-decreasing, no CCS breakthrough

Central Station Gas

Large-scale natural gas-fired generation in the large megawatt scale needing transmission connections

+increasing due to economic growth

Central Station


Large-scale solar power generation at the megawatt scale needing transmission connections

+increasing with economic growth

Central Station


Large-scale wind-powered generation in the megawatt scale needing transmission connections

+increasing with economic growth

Central Station Nuclear

Large-scale nuclear-powered generation needing transmission connections

-decreasing with plant retirements

Geothermal Power

Central station geothermal needing transmission connections

~relatively same as historic levels

Hydro Power Expansion/Extension

Continuation or expansion of hydro power generation at existing plants needing transmission connection

~relatively same as historic levels

Solar Power

Small scale (generally roof top photovoltaic systems) that are located at the site of consumption

+increasing with economic growth

Distributed Energy Efficiency

Multiple forms of investment in capital stock which leads to reduced energy consumption or which support load management

+increasing due to economic growth

Distributed Gas

Small-scale natural gas-fired generation serving loads in a local area which may or may not require distribution

+increasing with economic growth

Distributed Power Storage

Use of local sources of electric energy storage from stationary or mobile sources

~relatively same as historic levels

Large Scale Central Storage

Using a range of technologies and needing transmission connections

~relatively same as historic levels

1 The above listing of sources of power supply options can change over time and with varying degrees depending on conditions in the scenario. Conditions in the scenario related to changes in economic growth, fuel prices, technological change, industry regulations (state, provincial, and federal) and public policies will affect the amount of power supplied from the power sources. For this scenario a sense of the direction of change can be indicated as follows:

WECC Scenarios

WECC Scenarios

2 + increasing, ++ significant increases, - decreasing, --significant decreases, and ~ no significant change from historical levels.

Page 22 of 27March, 2013

Page 25 of 30March, 2013

Scenario One – Overview of Modeling Parameters

The scenario narrative above is a largely qualitative description of a potential world for the WECC region over the next 20 years. As part of the TEPPC planning objectives the scenarios are also to be used to generate alternative transmission plans through modeling study cases with the Study Case Development Tool and the Network Expansion Model. During 2012 a team from the SPSG created quantitative modeling inputs to represent the scenarios for use in the Long-Term Planning Tool (LTPT). Those quantitative representations vary by scenario and the full detail of this work will be presented to WECC stakeholders during the first quarter of 2013 by WECC staff. Shown below are some of the key distinguishing model parameters for Scenario One shown against the Reference Case parameters.

Input Parameters


2032Reference Value

Scenario 1

Fuel & Carbon Costs

Natural Gas












Capital Cost Reductions


% below 2012 cost




% below 2012 cost



Solar PV

% below 2012 cost



Solar Thermal

% below 2012 cost




% below 2012 cost



Net Energy for Load





Policy-Driven Load Reductions




Policy-Driven Electrification




WECC Net Energy for Load




Implied Growth Rate, Unadjusted Load




Implied Growth Rate, Adjusted Load




Coincident Peak Demand





Policy-Driven Load Reductions




Policy-Driven Electrification




WECC Coincident Peak




Implied Growth Rate, Unadjusted Load




Implied Growth Rate, Adjusted Load





Renewable Goals




State RPS

% of Load Energy

Current state policies

Current state policies

Federal RPS

% of Load Energy



In-state RPS Requirement

% of RPS requirement

Current in-state preferences applied to RPS requirements

Current in-state preferences applied to RPS requirements

Scenario One - Policy Themes

The chart below indicates how policy areas might influence the context in which energy related decisions are to be made within scenario one. The indicators on the charts will also be used to indicate changes from the common case assumptions, which will be the basis for WECC quantitative modeling. The common case assumptions should be thought of as a world, which naturally extrapolates from current conditions with no extraordinary changes.

Key: ‘++’ = Most aggressive; ‘+’=aggressive ; ‘-’= less aggressive; ‘– –’ = least aggressive; ‘0’ = neutral

Policy Categories

Scenario 1: Focus on Economic Growth


Policy Theme

High need driven by economic growth.

+ means:

Greenhouse Gas Policies


more aggressive reduction targets

Economic Policies


pro-growth policies

Capital Investment Support


more investment support

Renewable Energy Policies


more favorable to renewables

Transmission and Standards


more favorable to investment and coordinated operations

Federal R&D/ Technology Support


more support

Transportation Policies


more support for alt. fuel vehicles and transport. choices

Demand-side Policies


more support for demand-side investments

Energy Security/Independence Policies


more support for domestic resources

Environmental/ Cultural Policies


more protection of environmental/cultural resources

Consumer Issues


more restrictions on cost recovery



more support for enhanced production

Scenario Two: Focus on Clean Energy

Wide-spread Economic Growth in WECC Region with Increasing Standards of Living and Paradigm Changes in Electric Supply and Distribution Technology

This is a world in which the economic gloom from the 2008-2010 recession turns around because of effective economic policies and a technological rebound that shows the power of innovation to restructure markets and industries. Initially tough, but ultimately, correct policy changes address the damage done to financial markets from the credit crisis and lead to a properly functioning financial industry that invests in real assets. Some of those real assets are rebuilding and retooling a cleaner, smarter, more energy efficient and flexible energy infrastructure as new environmental policies encourage investment which will support long-term competitive advantages for the nation and states in the WECC region.

Positive developments in the global economy, including growth in trade and further economic expansion in developing nations, benefit the U.S. overall. After an adjustment period, new policies address concerns about climate change and the costs of economic externalities. Investment surges into technological innovations in the energy market and other industries, creating a greener and solid long-term foundation for job growth. However, there is a zigzag nature to this greening change as policies to protect the jobs in and the economic power of fossil fuel industry are also enacted, however with care to address emerging environmental policies. Innovative products shape a more efficient, interconnected, and intelligent business environment. Companies in the power industry are also revising their business models to compete with new entrants and provide new information-intensive services using smart-grid approaches.

With some periods of policy adjustment and adaptation, the WECC region, home to many of the emerging industries shaping the world, leads the transformation to a more environmentally responsible marketplace and enters a new period of long-term growth.

This is a story of persistent long-term change toward a greener and more sustainable power system. However, the path there has some challenges with financial adjustments within the power industry and periods of internally inconsistent national energy policies.

Key Scenario Metrics in 2032:

Natural Gas Price = 2032 Reference Case value: $6.58

Cost of Carbon = $100

Policy Adjusted Peak Load Growth Rate* = 1.1% (2032 Ref Case = 1.5%)

Policy Adjusted Demand Growth Rate* = 0.1% (2032 Ref Case = 1.2%)

* Adjusted for known electrification, DSM and energy efficiency policies included in the modeling results

Beginning Years: 2013-2017/Steps Toward Building a Foundation for a Modernized Electric Power System

The big events and issues shaping the electric power sector in the WECC region in early 2012 can be summarized in four key areas: (1) The impact of and recovery from the 2008-2009 credit crunch and follow-on recession; (2) A growing concern among voters and their representatives about both the short-and-long-term effects of climate change; (3) A rapidly emerging concern about the long-term availability and usage of freshwater; (4) The growing investment in renewable energy technologies to meet renewable portfolio standards (RPS); and (5) Assessing how implementation of the recent FERC Order 1000 addressing regional planning might play out.

Taken together, those five issues make players in the electric power industry (investors, developers, regulators, activists and policy makers) anxious about the shape of the business—especially the shape of long-term demand growth and where and how to invest. Investors, including investor-owned utilities, private owners of generation and transmission, and public power companies can envision the emergence of a cleaner, greener and more efficient system. They are wary of over investing and concerned with problems with cost recovery. Regulators want to send the right signals to the market, but are wary of putting rising costs onto consumers who are likely to resist them. Activists and advocates for protection of the environment seek to promote balanced financial and regulatory support in order to sustain and accelerate investment in renewable and clean technologies while mitigating climate change impacts and supporting economic growth (see Figure 2.1 on the growing competitiveness of solar power).

Elected officials and policy makers want guidance on how to enable the emergence of a more flexible and robust energy infrastructure, which will be the basis for long-term economic growth. There are a range of views on how FERC Order 1000 may affect power and transmission investments and cost allocations generally controlled within state bodies. Legislators and regulators face a complex challenge: How to continue progress toward a cleaner, efficient and more sustainable power system without imposing high and escalating energy costs on consumers and industry (see Figure 2.1 below on the increasing cost competitiveness of solar power). Plus, this must be accomplished without damaging economic growth or job creation. Within all of these considerations there is also excitement about the prospect of expanding economic opportunity by seizing a leadership position in the global clean-technology sector. Over time, smart investments in emerging technologies raise the prospect of reducing power cost to customers.

Figure 2.1: Guess What: Falling Solar Costs, Rising Retail Rates

Unsubsidized Solar Electricity Price v. Commercial Retail Electricity Price (Nominal)

Source: Commercial Rooftop Revolution, Institute for Local Self-Reliance (ILSR), Dec. 2012

As this future unfolds, it becomes possible to manage the tough issues of the early years because of a return to solid economic growth and the emergence of national political leadership to address the threat of climate change. Innovative new technologies are decreasing costs and providing new features and options for consumers and businesses. This does not come easy because new policies take time to implement and industry players experience an adjustment period. Between 2013 and 2018, key policies and decisions take shape in an atmosphere of positive, yet nervous feelings for all participants in the industry, especially investors.

During these early years, the U.S. and global economies confront several fearsome challenges, including: (1) The environmental damage associated with a warming climate and economic dislocations associated with extreme weather-related events; (2) The European debt, banking, and currency crises; (3) Turmoil in the Middle East shaking oil markets and increasing prices (even though there is no shortage of oil in the world); (4) An ongoing concern about potential sovereign debt defaults by the U.S and certain European nations; and (5) Persistent unemployment challenges, coupled with a slow recovery in the housing and real estate markets that stifles consumer spending, which is still the major driver of U.S. economic growth. Fortunately, regulatory adjustments within the banking sector ensure that lending and banking activity is now better aligned with public policy and long-term stable growth.

These myriad problems would normally push other legitimate concerns like climate change, looming water scarcities and utility infrastructure to the bottom of a legislative list. However, after Hurricane Sandy’s devastation of the U.S. Eastern Seaboard in 2012 as well as the drought conditions in the Western U.S., citizens voice concern about the safety of cities, valued natural resources, agriculture and the quality and stability of essential public infrastructure. There’s now a willingness to pay more to ensure greater security and reliability in these vital systems. Political leaders feel emboldened to communicate to voters the tough choices required to rebalance incentives in order to grow the economy in a more sustainable direction. This includes addressing greenhouse gas emissions like carbon and expressing a willingness to invest in technologies, which mitigate the cost of climate change. Regulators recognize these concerns and focus on sending accurate price signals to the market in order to spur the necessary investments.

In the WECC region, states, provinces, and local governments develop the fundamental groundwork that will eventually pay big dividends for long-term growth and environmental protection; the region bursts with economic activity, especially in the energy sphere. Examples include:

1.) Maintaining renewable portfolio standards in order to provide a positive climate for investment in innovative clean-energy technologies;

2.) Taking the lead on policies required to cap carbon emissions (thereby monetizing those emissions);

3.) With some federal support, providing tax credits and other benefits to spur electric vehicle adoption;

4.) Creating and enforcing new rules on water use and safety;

5.) Monitoring and regulating the safe use of new natural gas drilling techniques, reducing fugitive emissions of carbon in drilling and transportation, and enabling that fuel’s accessibility;

6.) Regulators working with local utility companies to bring increased efficiency and high technology into the management of their power systems and lower energy costs for consumers and businesses; and

7.) Working with businesses in the manufacturing sector to develop jobs as U.S. competitiveness increases due to lower costs of energy and high levels of innovation.

These actions, coupled with the establishment of a region-wide Energy Imbalance Market (EIM) in the WECC region, eventually coalesce into a solid foundation that will put the electricity sector on a more sustainable, cleaner and operationally flexible path. Industry experts praise the leadership role of companies in the WECC region and advocate their actions as a national model. Protecting citizens and proper price signaling to investors are key inputs into the thinking of both energy regulators and policy makers.

During these years, the basic components of the emerging electric energy business are in place. These components include:

1.) Expanding implementation of smart grid and metering technologies;

2.) Building of renewable energy generation—both wind and solar power systems as well as advanced geothermal systems—supported by sustained R&D;

3.) Continued evolution of battery technology to serve both the automotive and distributed generation industries;

4.) Investment in new information, communications, sensor and control technologies that will bring more efficient management into the power system;

5.) The expansion of pay-for- performance cost recovery regulation in the power sector that allow for more win-win business models for consumers and investors; and

6.) Continued investment in energy efficiency and opportunities for distributed generation.

Though changes are put in place, not all companies are prepared to quickly adjust. This leads to some short-term damage in their financial positions and, in some cases, write-downs and write-offs of sunken obsolete assets. The financial impacts are spread among key stakeholders as investors take some losses. Some costs are rolled into utility rates with long-term cost recovery and some price increases hit consumers. Opposition to rate increases is avoided as consumers are willing to pay more for what they now view as reasonable costs in light of their support for addressing environmental concerns. The adjustment to a more sustainable energy market moves ahead without much rancor. On the whole, growing investments in the energy sector support economic growth.

The electricity sector struggles with what to do about existing coal and natural gas generation. Some business and political constituencies support extraction of fossil fuels. Supporters in both the Eastern U.S. coal states (West Virginia, Ohio, and Pennsylvania) and coal-producing states in the WECC region develop a national alliance meant to save the domestic coal industry. This coalition is able to delay the impact of EPA rules on the coal industry and advertise the ability of new technologies—including the development of carbon capture and sequestration—to keep one of North America’s most abundant fossil energy resources online. Policy proposals for the long-term survival of the fossil industry lead to the U.S. government approving the development of export facilities on the West Coast for coal and LNG exports to China and other Asian nations. Climate advocates see this policy as a zigzag and one that is inconsistent with the spirit of the policy changes enacted to address climate change. There is frustration among activists and some investors with policy makers not seeming to understand the growing benefits of cleaner fuels, market innovations and investments that are supporting optimization of the power grid.

Natural gas supporters contend that it is much cleaner than coal, has a smaller carbon footprint, and that it is much easier to build gas-fired power plants in a wide range of sizes to support the base-load, peaking, and fast-ramping needs of power companies. Domestic gas supplies are just as abundant, if not more so, than coal. There’s an expectation that increasing supplies will restrain increases in natural gas prices even while sustaining some level of exports.

The retirement of old, dirty coal plants makes perfect sense to environmental activists and natural gas enthusiasts (see Figure 2.1 below for one forecast of possible coal retirements). Advocates for the renewable energy business also view the retirement of coal plants as essential to the replacement of dirty capacity with clean capacity. Growth, technological advances and economies of scale will continue to lower the cost of renewable generation and increase its competitiveness across the board. Taken together, the battle for market share among coal, gas, and renewables suggests lower overall energy costs as they each provide checks and balances on one other. Wind and solar generators find themselves continually on alert to find ways to lower their costs.

Figure 2.2: Announced and Projected Coal Retirements by NERC Region

Coal plant retirements may be of little consequence in the WECC region and thus most new generation will be built to meet demand growth.

Source: Potential Coal Plant Retirements: 2012 Update, The Brattle Group, Oct. 2012

During these early years, the nuclear power industry maintains a low public profile with only a modest level of lobbying for additional R&D funding. Concerns about safety, long-term waste disposal, and the impact of Japan’s Fukushima Daiichi plant meltdown make investors and policy makers quite risk averse about nuclear power. Though new plant designs, e.g. thorium-fueled molten salt reactors, appear promising, only investments by power companies in the Southern U.S. keep the industry in business. Few utility CEOs will publicly commit to nuclear without significant government guarantees and financial support, including recovery of investment costs during construction.

In both the 2014 and 2016 national election cycles, polls of American voters show consistent political support for a more progressive energy future. Job growth potential, export market opportunities, and private investment in the underlying new energy technologies sustain a centrist political approach that spurs innovation and commercial development. Federal, state, and provincial government policies push the expansion of renewable energy investment and R&D. Consumers accept a new value proposition based on previously externalized costs being included in planning, decision making and power rates. With subtle, but strong, reminders from large damaging storms and other climate related events, the public accepts the proposition that climate change must be addressed. This is evident in the growing electrification of the automotive and transport sectors.

By the 2016 U.S. election cycle, economic recovery nationally and in the WECC region is on solid ground. Growing tax revenues have strengthened state coffers and housing markets are in full recovery, much of it driven by more urban infill building.

Middle Years: 2018-2022/Tension Passing Through the Inflection Point Toward Sustainability

Policy change in the energy industry is never a good thing for everyone, especially for those invested in the past or in maintaining the status quo. Policy makers and, to a growing extent, the public understand the need to make near-term decisions that support long-term change. The central question is this: Who is going to pay for it? Or, how do we all pay for it? The solution turns out to be an approach based on sharing the pain in order to minimize the impact of a boom-bust cycle.

Investment in new energy infrastructure is needed to support a more efficient (thus cheaper), reliable, resilient and cleaner base for the economy. At the same time, some large investments from the past are made obsolete. It is not politically feasible to place the whole cost of making the transition on those companies that had made legitimate energy investments to serve the nation. With the boom there is also a bust for some.

State and federal energy policy makers and regulators struggle with how to distribute the cost and rate impacts of the energy market transition taking place. Federal agencies are careful not to extend their power too far into local rate setting, but want the expected cost-saving benefits of a more efficient, coordinated and more regional power system captured. State governors and regulators also want cost savings, but also wish to capture in-state economic development opportunities and keep power rates moderate to support job growth. With all of this, comes a lot of work to manage the financial issues in the energy market transition.

The energy industry manages to muddle through some financial challenges with support from regulators and policy makers who soften the impact of the adjustments needed. Combinations of refinancing, long-term rate recovery, tax breaks, and rate increases are used in various states to make the deals needed to smooth the path toward a sustainable energy sector. In most cases, rate increases are put in place without shocks.

In contrast to this downward trend, there is expansion in areas such as: (1) Smart meters and smart-grids; (2) Wind and solar plants (including some CSP plants capable of meeting reliability needs) with new storage technologies; (3) Flexible natural gas plants used to balance power systems in meeting reliability; (4) Electric vehicle charging stations; and (5) A transformation of the power grid that enables more coordination between distribution-level and transmission-level operations.

In light of the earlier setbacks for U.S. car manufacturers in the electric vehicle market, most observers did not anticipate such tremendous success in the hybrid vehicle market. But with the price of hybrid and all-electric vehicles declining due to ramped-up production and improved battery systems technology that extend vehicle range, a positive feedback loop of customer satisfaction accelerates sales and overall market penetration. Hybrids sales achieve 30% market share for all vehicles sold in North America by 2020. With EPA CAFE standards for light-duty vehicles still expected to come online by 2025, forecasts are that all-electric and gasoline hybrids will achieve a combined 50% share of the new vehicle market by then.

Electric power companies welcome a new wave of investment in heavy-duty and long distance vehicles even though few had expected the size of the uptick in demand growth from the transportation market. Increased profits also help U.S. automakers rebuild both their financial base and their manufacturing assets for the long term. What’s good for General Motors is once again good for America.

The U.S. is not alone in pursuing investments that will change electric power markets. Other nations in Europe and Asia are also on the bandwagon seeking to generate jobs, investments and competitive exports. Policies to address climate change are common in the largest economies in line with global commitments to address greenhouse gases. U.S. leadership plays an encouraging role in a global implementation of clean-tech investments with financial as well as policy support.

Another trend being shaped by policy and energy realities is the reduction in urban sprawl. Urban and inner-suburban land development contributes to a more efficient economic structure for the nation. Lifestyles, which embrace the use of public transportation, car sharing, biking, and just plain old walking, are no longer seen as exceptional.

The increase in demand growth benefits the power sector and makes the drive toward meeting renewable portfolio standards easier. It’s putting the “wind in the blades” of wind generators. Solar companies, builders of distributed power systems, and independent power networks all experience growth in sales. This leads to a more distributed and smarter power system. Consumers experience the emergence of a power system in which a wider range of prices are charged for differing levels of energy services. Prices paid to recharge cars may differ from location to location or at different times of the day. The unfolding and full deployment of information, communications, sensor and control technologies allow demand side resources to play a much larger role in ensuring reliability. Power from greener sources is easier for consumers to access by choice.

During these years the U.S. economy hits its stride. States and Provinces in the WECC region are in full recovery mode. States and Provinces with strong positions in mining, timber, agriculture, and energy lead the way. As incomes rise, consumers start to purchase big-ticket appliances, televisions (including some relatively energy-intensive 3-D sets), and cars with greater frequency. Some of these purchases help to p