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US Utility Industry and Regulatory Landscape
Utility of the Future series 2012
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What’s In This Research
How can you Profit from it?
US Utility Industry and Regulatory Landscape
Key Utility Processes
US Electric Utility
KeyValueSteps
Value ofSmart Grid
How Smart Grid can Benefit?
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Why you should consider this report
• Understand US Electric Industry• Regulatory Landscape• Key Utility Processes• How Smart Grid can Benefit the Industry• Example Components
US Electric Utility Primer 2012
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John Chowdhury:• has been working in the Utility Industry for the last 23 years• His clients includes CenterPoint, San Diego Gas & Electric, APS, Southern California Edison, Vectren, TXU, NIPSCO to name a few
Objectives of SmarterUtility.com:• Create a Federated Knowledge Repository to take advantage of knowledge, regardless of where it is housed
• Support multiple channels from a single knowledge repository (Country‐State‐City‐Utility‐Regulator‐Partner‐Vendor‐etc.)
• Knowledge repository is based on the context and intent• To Leverage Subject Matter Experts to improve yoursuccess factors
• Adaptive Knowledge architecture that will support all yourneeds with a single repository and remain flexible tochange as needed
• Use the Adaptive Knowledge architecture to supportTransparency of knowledge, Cloud computing, Mobilepresentation, and Social use of knowledge with no additional changes
It’s about Success, and Knowledge Sharing
US Electric Utility 101
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Contents• Electric utility industry overview
– Industry structure and value chain steps– Market and utility types– Regulatory overview
• Overview of each value chain step• Factors that incentivize electrical utilities• Benefits of Smart Grid for electrical utilities• Appendix
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• Convert fuel energy into electrical energy
• Increase (‘step up’) voltage for efficient transmission
• Transmit electricity over long distances
• Deliver electricity to large industrial customers
There are 3 Core Physical Elements of the Electric Utility Value Chain
• Reduce (step down’) voltage
• Deliver electricity locally to commercial and residential customers
Generation Transmission Distribution
6
Role
Start and end points
• From fuel to the high‐voltage output of the generating station*
• From the high‐voltage output of the generating station to the transformer in the substation*
• From the substation transformer to the customer meter
Fuel
* Some utilities consider the step up and step down transformer to be part of the transmission network
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Examples of Electric Utility Assets
Generation Transmission Distribution
Distribution wires &Low‐voltage transformer
Pad mount gear
Residential meters
Coal
Natural gas
Nuclear
Hydroelectric
Generation transformer
Transmission substation
765 KV transmission lines
230 KV transmission lines
Substation
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In the Beginning, Utilities Were Granted Monopoly Status with Oversight by Regulators
•Granted monopoly status due to economies of scale
•Allowed recovery of reasonable and necessary operating costs
•Allowed reasonable return on invested capital
•Approved capital investment plans and operating costs
•Ensured excessive costs borne by utility investors
•Required utility to support social goals
Utilities (Electric, Gas, Water, Telephone, Railroad)
Regulator
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Over Time Some States Deregulated and Broke Up the Monopolies
Until the late 70s
•Oil shock leads to push for lower energy costs
•Environmental awareness increases
•Generation no longer seen as a natural monopoly
•Independent power producers (IPP) emerge in some states
•Existing utilities become hesitant to build capacity
Late 70s – mid 90s
•Government pushes to deregulate many industries
•Some large commercial users push for deregulation in hopes of lower prices
•Some states begin to deregulate – CA is first
•Independent organizations are created to oversee access to transmission & wholesale power*
•Energy retailers are created in some states
Mid 90s – early 00s Early 00s ‐ today
•Regulators attempt to achieve lower prices, but several backfire
•Deregulation stalls
•Regulators attempt to encourage utilities to build generation and save energy
•Utilities act as monopolies
* Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs)
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Wholesale and Retail Businesses Emerged Due to Deregulation
Purchase fuel and produce power
Generation Wholesale trading
Facilitate buying/ selling of power between Generation and Retail players
Transmission Distribution Retail
Transmit power over long distances
Deliver power locally to customers
Sell power to customers and handle billing
Generation Transmission Distribution
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There are 3 Types of Electric Utility Markets Across the US
IPP*
Generation Wholesale trading
Trans-mission Distribution Retail
Fully regulated
Hybrid-regulated
Deregulated
Regulated
Un-regulated
Fully regulated Utility
Utility Holding Company
Utility Holding Company
Generation subsidiary
* IPP = Independent Power Producer
Generation subsidiary
Trading subsidiary Wires / T&D Utility
Hybrid-regulated Utility
Retail subsidiary
Example market
Alabama
California
Texas
Market Type
IPP*
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Most States are Still Regulated
• Regulated: 34
• Deregulated: 16*
• Hybrid: 1
* Includes Washington DC, 6 states are deregulated but have a rate cap or state oversight of rates (AZ, MI, NH, OH, PA, RI)Source: USA Today Aug‐10, 2007
Deregulated
Hybrid
Regulated
• Regulated: 34
• Deregulated: 16*
• Hybrid: 1
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There Are Also 3 Types of Electric Utility Companies, Differentiated By Ownership TypeInvestor‐Owned Utilities(IOU)
Municipally‐Owned Utilities(Munis)
Cooperatives(Coops)
• Publicly traded company• Electricity only• One of US’s largest generators of
electricity (38 GW)• US largest electricity transmission
system (39k miles)• States served: AK, IN, KY, LA, MI, OH,
OK, TN, TX, VA, WV• Regulated according to each state’s
regulatory framework
• 210 IOUs in the US (7% of US utilities)• Serve 105M customers (74% of total)
• 2009Munis in the US (65%)• Serve 14% of customers
• 883 Coops in the US (28%)• Serve 12% of customers
• Owned by customers• Electricity only• Regulated by an elected Board of
Directors• 6th largest publicly owned utility• 3.3 GW peak capacity• Own transmission and distribution• Serve Sacramento County and a
portion of Placer County
• Owned by customers• Electricity only• Regulated by 10‐person elected
Board or Directors• Operates in 14 counties north and
west of Austin, TX
Source: EIA, aep.com, smud.org, bluebonnetelectric.coop
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IOUs are Influenced by Several State and Federal Entities (CA example)
• Reliability of interstate electricity transmission• Interstate electricity sales and wholesale electric rates*
• National standards related to air and water quality
• Reactor safety• Reactor licensing• Radioactive material safety
Federal State
• Service standards and safety rules• Utility rate changes• Monitoring anti‐competitive behavior• Energy efficiency and conservation programs• Programs for low‐income households
• State standards related to air and water quality• Proposed construction
• Promoting energy efficiency, renewables• Licensing large thermal power plants
* Also regulate interstate natural gas and oil transport and sales
These organizations are independent of the utilities
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Some Utilities Offer More than Electricity
INDICATIVE ESTIMATE;NOT COMPREHENSIVE
30
76
52
2
0
24
26
0
1
0 20 40 60 80 100
Munis
Coops
IOU
Electricity only
Electricity & Gas
Electricity & Water
Electricity & Gas &Water
• 2/3 of IOUs offer electricity only, most of the rest also offer gas
• Coops are largely designed to provide rural electricity
• ~1/2 of Munis offer electricity only, while half offer electricity and water
Utilities Offering Different ServicesCount (from a sample of 213 large utilities)
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Contents• Electric utility industry overview• Overview of each value chain step
– Generation– Wholesale– Transmission and Distribution– Retail
• Factors that incentivize electrical utilities• Benefits of Smart Grid for electrical utilities• Appendix
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Mechanical energy Electrical energy
Spinning turbine Alternating current (AC)
Magnet
Fuel
Generation: Power Plants Convert Fuel Energy into Electrical EnergyChemical, atomic, thermal energy
• Most electricity in the US is produced in steam turbines
• In a fossil‐fueled steam turbine, the fuel is burned in a furnace to heat water in a boiler to produce steam
• Turbine converts the kinetic energy of a moving fluid (liquid or gas) into mechanical energy
• Steam hits the blades and rotates the shaft connected to the generator
• The generator has a stationary cylindrical conductor that is wrapped with a coil (wire)
• The shaft has a magnet attached to it, which rotates within the conductor
• When the magnet rotates, it induces an electric current in the wire
text
text
text
text
Furnace / Boiler
steam
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Generation: Coal, Natural Gas and Nuclear Generate 90%+ of US Electricity
* Includes hydro pumped storageSource: EIA
US Electricity generation by source, 2008Percent
49%
21%
20%
6%3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Other*
Other Gases
Petroleum
OtherRenewablesHydroelectricConventionalNuclear
Natural Gas
Coal45%
42%
12%
1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Solar/PV
Geothermal
Wind
Biomass
Generation of Other Renewables, 2008Percent4,110 TWh 123 TWh
•Coal + Natural Gas + Nuclear generate 90%+•Coal is the dominant source, almost 50% of generation•Non‐hydroelectric renewables make up only 3%
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1/1 12/31
Annual
Minimum load
Maximum Peak load
Cycling load• Semi‐predictable demand• Energy sources must be flexible to follow changes in demand
Generation: Electricity Demand Fluctuates Throughout the Day and Year – This Requires Energy Sources with Varying Levels of Flexibility
Demand
MidnightNoonMidnight
Reserve marginCapacity
Daily (peak day)ILLUSTRATIVE
Base load• Predictable level of demand•Addressed by very large power plants that produce energy inexpensively when operated continuously at high utilization (…you can’t just crank them up and down with demand)
Peak load•Unpredictable demand
• Sources must be able to start quickly – or be held in reserve
• Resulting energy cost is high
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Peak load capacity
Cycling loadcapacity
Base loadcapacity
Wholesale: Facilitates Matching Demand with SupplyILLUSTRATIVE
The lack of efficient storage for electricity creates the need to match demand and supply in real time
Additional power may need to be acquired through wholesale markets to meet demand
Demandcurve
DemandDaily; MW
Time of Day
Supply available at a given time may not exactly track demand.Excess power may need to be sold off through wholesale markets
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Source: EIA
Transmission: NERC Divides the Nation’s Transmission and Distribution into 3 “Interconnections”
Each interconnection effectively acts as an independent grid system, with limited power crossing between “seams”
ERCOT
WesternInterconnection
ERCOTInterconnection
EasternInterconnection
Source: FERC
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Transmission and Distribution: Deliver Power from Power Plants to Customers
• High voltage transmission lines transport power to distribution substations• Because transmission infrastructure impacts so many customers downstream,
transmission has been equipped with ‘smart technologies’ (sensors, automated controls and communications) for many years
• The distribution network delivers power over medium‐ and low‐voltage power lines
• Transformers (that look like big buckets hung on power poles) further reduce the voltage to normal household electrical service
• The distribution network includes the electricity meter
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87.2%
37.1%
12.2%
35.6%
0.6%
27.4%
0.0% 0.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
TransportationIndustrialCommercialResidential
Retail: Electrical Utility Customers and Consumption
• Residential customers make up almost 90% of all customers. Commercial customers make up almost all of the rest.
• Although Residential is the biggest sector by sales (in other words, consumption) at 37%, sales are more evenly distributed across sectors
• Net result… average sales per customer is very low for Residential relative to Commercial and Industrial
Electrical Energy Sales by Sector, 2007Percent, 100% = 3.7M GWh
* The Transportation sector ‘s 750 customers constitute less than 0.1% of customers
Source: EIA
Customers by Sector,2007*Percent, 100% = 142 M
Average sales per customer (MWh/yr)
11,000
1,300
77
11
#
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The U.S. is the Largest Electricity Consumer in the World
* Australia is ranked 14 worldwide (not 11) and Mexico is 17, but they are shown here for referenceSource: EIA
0 1,000 2,000 3,000 4,000 5,000
Mexico
Australia
South Korea
Brazil
France
India
Canada
Germany
Russia
Japan
China
United States 23%
15%
6%
5%
3%
3%
3%
3%
2%
2%
1%
1%
Consumption of Electrical Energy by Country, 2006 – Top 12*GWh
Share of GlobalConsumption
69%
• US is the largest consumer
• Top 10 consuming countries plus Australia and Mexico consume 69% of world total
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Contents
• Electric utility industry overview• Overview of each value chain step• Factors that incentivize electrical utilities
– Financial– Operational– Environmental– Typical utility behavior
• Benefits of Smart Grid for electrical utilities• Appendix
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New Challenges are Emerging for Utilities
OperationalFinancial
• Providing affordable electricity • Reliability
• Safety
IOUs have a profit motivation, Munis and Coops do not
Some Munis also are responsible for Police & Fire services
Traditional Tension
Environmental
New Tension New Tension
• Likely legislation on carbon cost• Renewable power standards and energy efficiency requirements
• Growing penetration of distributed generation (especially rooftop PV)
• Emergence of electric vehicles
• Expectation for more efficient operation
• New environmental costs increasing
• Generation costs increasing
• Increasingly stringent reliability metrics
• Integrating distributed and intermittent generation, EVs, microgrids
• Maintaining power grid security
Italics: new challenges
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Financial: First… How Do Utilities Earn Profits?
• Munis and Coops are owned by their customers, so they are not profit‐oriented
IOUs
Munis
Coops
• Generation companies earn profits through selling electricityGeneration companies
• Retail companies (which operate in deregulated markets) earn profits through buying and re‐selling electricity
Retail companies
• However, (T&D) IOUs do NOT earn profits on the electricity they sell• Yes, they do receive revenues for the electricity through the rates that
consumers pay…• But the regulators set rates so they cover utility costs to purchase and
deliver that energy• The rates also cover their other costs• Regulators grant the companies a “fair rate of return” on the value of their
assets, such as the distribution lines, transformers, meters, etc. This return, too, is reflected in the rates that utility customers pay.
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Financial: Many Regulators Set IOU Revenues Based on Cost‐of‐Service
Cost‐of‐Service Calculation
RR = O + T + D + r*(RB)
Integrated utility
Monopoly status and fair rate of return
Payment for service
Guarantee of reliable service at reasonable rates
Customer
Regulator
Obligation to serve
RR = utility’s revenue requirementO = operating costsT = taxesD = depreciation allowancer = fair rate of returnRB = rate base• Generally represents the property and assets
used to provide utility service• May be based on fair value, prudent
investment, reproduction cost, original cost
* ROE rules differ by state. Can be based on treasuries/borrowing costs, peer‐group ROEs
Roles
• IOUs make profits based on the rate of return (r) and the rate base (RB), so there is an incentive for IOUs to increase the rate base.
• They don’t make money on the commodity. They just recover their costs for it.
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Financial: What Utilities Show on Your Bill (PG&E Example)
Source: pge.com
Back page of your bill (the fine print)
These per‐kWh rates include amounts for cost recovery and the rate of return
• As you can see, the rate includes many elements (described on the back page of your bill)
• Generation and Distribution make up 81% of this bill• Generation includes fuel and purchased power• Both also include construction, maintenance and
financing costs
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Financial: There are Several Approaches to Billing for Usage
Time of use (TOU)
Critical Peak Pricing (CPP)
Real‐time Pricing (RTP)
Tiers
Description
• Different rates charged for electricity used at different times during the day: higher rates are charged during times of greater demand
• Allows the utility to better match revenues with their energy procurement costs and encourages consumers to use less during peak demand times
• Utilities project energy demand for the following day and, if demand is expected to be very high as on hot summer days, designate the following day as a “critical peak” day
• Utilities charge higher rates on CPP days and lower rates on non‐CPP
• Within CPP days, there may be more than one rate in TOU pricing
• Rates are set “real‐time”, so they are more dynamic than TOU
• Based on shorter time intervals, typically minutes, not blocks of hours
• Not yet widely adopted – requires frequent meter reads and either consumer access to price signals or direct utility control of customer loads
• Multiple rates based on consumption
• Baseline: based on average monthly usage for a given customer type
• Higher rates charge for consumption above the baseline quantity allocated
Consumption
Timing
Demand response (DR) mechanisms
PG&E bill excerpt
Source: pge.com
The purpose is to reduce and shift energy demand during peak times
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Financial/Environmental: Demand Response is Emerging
* Includes Hawaii (not shown on the map)Source: FERC September 2009; California Flex Your Power
States with established Demand Response Plans (as of Sept‐09)
11states* have established Demand Response programs or plans
In CA, between the 3 IOUs, there are 26 DR programs, but only 3 (1 each) geared to residential customers
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Financial/Environmental: ‘Decoupling’ Profits from Energy Sales to Encourage Efficiency
Source: National Resource Defence Council
• As of the end of 2008, 6 states had adopted electric decoupling
• Expectation is for increased decoupling; 9 states were pending
• Decoupling separates a utility’s revenues from its energy quantity sales to not discourage energy efficiency• Rates (per kWh) for the utility are adjusted up if energy sales quantity goes down (or down if they go up)
Revenue_old = Rate_old * Quantity_old = Rate_new * Quantity_new = Revenue_new
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Environmental targets: Energy Efficiency Targets
Source: Pew Center
States with EE targets (2009)Summary• The primary purpose of EE is to
reduce overall demand and secondarily to reduce peak demand
• 22 states have EE targets• Target level, ramp up, elements (e.g.,
demand, peak demand) differ by state
• Typical programs:• Rebates for energy‐efficient
appliances and lighting• Loans for energy‐efficient
building• Incentives and penalties also differ
by state. For example:• CO and MI have incentives to
exceed targets but no penalties for non‐compliance
• In CT, providers that fail to meet efficiency requirements must pay a per‐kWh charge to the PUC
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Environmental targets: Renewable Portfolio Standards• Summary• A renewable portfolio standard (RPS)
is a state policy that requires electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date
• 24 states and DC have RPS policies in place and 5 others have nonbinding renewable portfolio goals (RPG)
• Standards can differ by type/size of utility in a state
• Incentives and enforcement are managed by individual states
• Relative to the US average of 3% of power from RPS, these targets represent a significant increase
* From ~13% in 2008Source: US Department of Energy ‐ Energy Efficiency and Renewable Energy, DSIRE and NREL; CA CPUC
States with RPS or RPG (2009)
CA: 33% by 2020*
NY: 24% by 2013
NC12.5% by 2021 (IOUs)10% by 2018 (co‐ops & munis)
OR25% by 2025 (large utilities)5%‐10% by 2025 (smaller utilities)
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Operational: Reliability has a Major Impact on Businesses
• Costs due to interruptions vary widely by business type
• In total (not shown) electrical interruptions cost US businesses more than $100B annually**
* Digital Economy includes companies that rely heavily on data storage, retrieval and processing (e.g., telecom, financial services, research and development); Continuous Process Manufacturing includes companies that continuous feed raw materials, often at high temperatures; Fabrication and Essential Services includes other manufacturing as well as utilities and transportation** Conservative estimate based on CEIDS calculation of $104B‐$164B in 2001. Loss categories include: production, labor, materials, equipment damage, backup, overhead, restart, otherSource: CEIDS (Cost_of_Power_Disturbances_to_Industrial_and_Digital_Technology_Companies.pdf)
0
2,000
4,000
6,000
8,000
10,000
1 second 3 minutes 1 hour
Average cost per business by interruption durationDollars
020,00040,00060,00080,000
DigitalEconomy
ContinuousProcess Mnfr
Fabrication& EssentialServices
Average annual cost of interruptions by business type*Dollars
• Even momentary interruptions can be costly• Average of $1477 per business for 1 second interruptions
• For continuous manufacturing, average 1 second interruption cost is much higher: $12.6k on average (not shown)
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Operational: Utilities Have Reliability Metrics and Incentives/Penalties for Missing Them
• Benchmark: 56 minutes• Increment: +/‐ 1 minute• Incentive: +/‐$2M (up to $18M)
* Metrics exclude planned outages. Metrics also have a duration threshold (typically 5 minutes), so interruptions shorter than the threshold are not counted in SAIDI, CAIDI or SAIFI.** Targets established in 2004
SAIDI• System Average Interruption Duration Index • Average total outage time (in minutes) over a year for
each customer servedCAIDI• Customer Average Interruption Duration Index • Average outage time (in minutes)
Duration‐based
Frequency‐based
Metrics* Example (Southern CA Edison**)
SAIFI• System Average Interruption Frequency Index • Average number of interruptions for each customer
served
MAIFI• Momentary Average Interruption Frequency Index• Average number of momentary interruptions for each
customer served• Definition of ‘momentary’ differs by utility (typically
under 5 minutes)
• Benchmark: 1.07/yr• Increment: +/‐0.01• Incentive: +/‐$1M (up to $18M)
• Benchmark: 1.26• Increment: +/‐0.01• Incentive: +/‐$0.2M (up to $3.6M)• Threshold: 5 minutes
These incentives are an alternative proxy for the value of reliability
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Contents
• Electric utility industry overview• Overview of each value chain step• Factors that motivate electrical utilities• Benefits of Smart Grid for electrical utilities• Appendix
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Reliability
Environment
Customer
There are Many Benefits to Smart Grid Solutions…
• Fewer outages• Shorter duration of outages• Better power quality
• More efficient operations and maintenance• Energy/Grid efficiency• Energy conservation• Reduced peak demand
Cost
• Reduced energy demand• Ability to integrate renewables• Enabling EVs
• Consumer empowerment• Improved customer
satisfaction• Lower energy bills
Example Benefits of Smart Grid Solutions
… but benefits can differ between regulated and deregulated markets
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Let’s Look at 2 Examples – First Demand Response
• DR programs are designed to…– Shift loads from peak to off‐peak times
– Reduce overall energy demand• DR programs use energy rates that are more expensive during times of higher demand
– Time‐of‐use (TOU) billing– Critical peak pricing (CPP)– Real time pricing (RTP)
• The action at the customer can be taken by the customer or by the utility using direct load control
Demand Response (DR) Energy Efficiency (EE)
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Demand Response – Greater Benefits in Regulated Markets
• Peak load reduction
Regulated market
Utility
• Deferred distribution capacity expansion
• Can target DR at specific circuits
• Potentially lower energy bill
UtilityDeregulated market
• Peak load reduction
• Potentially lower energy bill
Retail
No distribution benefits because Utility owns the wires but Retail owns the DR program and customer interface, so the Utility doesn’t have full control
Generation Transmission Distribution Customer
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Now Let’s Look at Energy Efficiency
• DR programs are designed to…– Shift loads from peak to off‐peak times
– Reduce overall energy demand• DR programs use energy rates that are more expensive during times of higher demand
– Time‐of‐use (TOU) billing– Critical peak pricing (CPP)– Real time pricing (RTP)
• The action at the customer can be taken by the customer or by the utility using direct load control
Demand Response (DR) Energy Efficiency (EE)
• EE programs are designed to…• Reduce overall energy demand• And in doing so, reduce peak load
• EE programs incentivize behavior byusing rebates for efficient appliances or lighting as well as loans for energy efficient construction
• Programs are funded through surcharges on customers (included in electricity rates)
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Energy Efficiency – Greater Benefits in Regulated MarketsRegulated market(with decoupling)
Utility
Deregulated market
Utility Retail
Generation Transmission Distribution Customer
• Customer reduces usage
• Utility makes same profit
• Deferred generation
Challenging to implement:Retailers compete with rates. If they sell less energy, they make less money.
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Appendix
• Recommended reading• Electricity fundamentals• Utility 102 starter materials• Other examples
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Recommended Reading• Electric Power System Basics for the
Nonelectrical Professional– Steven W. Blume– ISBN: 978‐0‐470‐18580‐3– January 2008, Wiley‐IEEE Press
• Understanding Today's Electricity Business– Authors: Bob Shively & John Ferrare– ISBN 0‐9741744‐1‐6– www.enerdynamics.com
• From Edison to Enron: The Business of Power and What It Means for the Future of Electricity
– Author: Richard Munson– ISBN: 978‐0313361869
• Electric Power Industry in Nontechnical Language– Author: Denise Warkentin‐Glenn– ISBN‐10: 1593700679 – ISBN‐13: 978‐1593700676
• Electric Power Distribution Reliability• Richard E. Brown
• Distribution System Modeling and Analysis• William H. Kersting
• Business Essentials for Utility Engineers• Richard E. Brown
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Electricity Basics (1/2)
Direct current (DC)
Alternating current (AC)
• Current flows in one direction• Batteries produce direct current
• Current amplitude and direction change over time• The electrical grid and wiring in our homes and businesses use
AC. Why?...• Energy can be transmitted over long distances with less
line loss than with DC• AC voltage can be stepped up or stepped down via
transformers
AC
DC
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Electricity Basics (2/2)
Single phase
Three phase
• Single‐phase electric power refers to the distribution of electric power using a system in which all the voltages of the supply vary in unison
• Used to supply electricity to residential customers and smaller commercial customers• In North America, there are generally 3 wires that come to your house, but they are
all on the same phase
• Three‐phase electric power systems have three alternating currents (of the same frequency) which reach their peak values at different times
• Delta between peaks is the phase difference• Used to supply electricity to industrial and some commercial customers• Combination of phases has the effects of giving constant power transfer over each
cycle of the current
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Technical losses in the electrical grid
% loss
Coal: ~65%Gas CCGT: 50%Nuclear: 2%
Substation transformers: 0.7%*
Substation transformers: 0.7%
Primary network:1.0%
Distribution transformers: 2.1%
Customer connection: 0.3%
Meter: 0.3%
Total: ~9% (for Nuclear) to ~70% (for Coal)
* Assumed equal to distribution substation transformer loss** T&D losses are from the Indiana URCSource: Indiana URC 2007; DOI USBR; NEI
Transmission lines: 0.5%
BASED ON INDIANA URC EXAMPLE**
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Power System Devices (1/4)Definition
Generation / power plant
• Generates electricity from a fuel source (potential energy) into electrical energy
• Fuel types include: biomass, coal, natural gas, geothermal, solar, wind• Built to a nameplate capacity rated in MW (MegaWatts)
Trans‐mission line
• Transports electricity at very high voltages (usually 66‐765kV) over long distances
• In the US, transmission is primarily alternating current (A/C), direct current (DC) is used in some areas
Substation • The location where electricity is converted from one voltage to another via large transformers
• Step down substations reduce the voltage (used to send electricity from transmission lines to distribution lines), step up substations increases the voltage
High voltage transformers
• The devices that convert or “transform” the electricity from one voltage to another
• Rated in k/MVA (Volt‐Amperes), which is theoretically the same as watts
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Power System Devices (2/4)Definition
Load tap changer
• Located inside the substations, LTCs are mechanical devices that control and change the voltage being sent down the line, more granularly than the transformer
• Generally, lifetimes of load tap changers are a function of the number of “taps” or actions taken
• Some utilities will use voltage regulators or large capacitor banks to perform the same function
Circuit breaker
• An automatically operated switch that opens the circuit (ie – stops power flow) when it detects an overload or short circuit in order to protect the circuit
Lightning arrestor
• Located in substations, and through the electric grid, lightning arrestors protect the power system from the effects of lightning, which can cause surges on power lines
• Aka – surge arrestor
Voltage regulators
• Device that senses voltage on input side and raises or lowers the voltage on output side to maintain a preset voltage level plus or minus a bandwidth
• Generally in substations, may also be along feeders
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Power System Devices (3/4)Definition
Sectional‐izer
• Protection device that opens a circuit, but does not have the ability to interrupt a line with current on it
• Requires devices on source side to interrupt current and voltage so it can open
• Replaces fuses with the advantage that it can be used multiple times without needing to replace pieces (the fused elements)
Recloser • Protection devices that opens a circuit, but can be programmed to close a pre‐set number of times to allow a line to be re‐energized if the fault is momentary
• Has the ability to interrupt fault current
Load break switches
• Used primary to isolate faults and transfer load between connecting feeders or substations
• Can be opened or closed to transfer sections of load from one feeder to another
Fuses • Device located in the electric grid, on a single phase, that protects the grid against excessive current, literally melting (thus, fuse) to open the circuit and interrupt power flow
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Power System Devices (4/4)Definition
Capacitor banks
• Devices that offset reactive power on a system, creating the potential to reduce losses due to reactive power
• Rated in kVAR (kilo Volt Ampere Reactive)
Low voltage transformers
• Converts higher distribution voltages (primary side) to lower voltages for use in premises (secondary side), usually 120/240 volts in US
• Most ubiquitous grid device after the meter
Meter • Measures electricity consumed at the premise• More advanced meters also can measure other elements – voltage,
reactive power, etc…
Faulted circuit indicators
• Provides visual or audio indication of fault current to identify where a fault has occurred
• Aka – Fault Current Indicators
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Peak •Low fixed costs•High variable costs•Quick start capability
Generation: Due to This Variability, A Portfolio of Generation Types is Needed to Efficiently and Effectively Meet Demand
•Combustion turbines•Pumped storage hydro
Load type Generation plant characteristics Typical plant types
Cycling •Lower variable costs relative to peak capacity
•Lower fixed costs relative to base capacity
•Load following capability (i.e., ability to move quickly between varying levels of demand)
•Oil and gas steam plants
Base •High fixed costs•Low variable costs•Reliability
•Coal•Nuclear•Hydro plants•Combined cycles
• Traditionally, utilities have looked at demand as uncontrollable, so they’ve needed various types of supply to meet the demand.
• With renewable energy supplies like solar, utilities face uncontrolled supply, which requires active loads (e.g. electric vehicles and demand response) to balance.
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Transmission: Role of RTOs and ISOs• RTOs (Regional Transmission Organizations)
• Independent, federally regulated entities established to coordinate regional transmission in a non‐discriminatory manner and ensure the safety and reliability of the electric system
• Play a role in coordinating wholesale trading• Usually operate across state borders
• ISOs (Independent System Operators) play a similar role to that of RTOs but each typically operates within a given state
Source: FERC
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Distribution: Network Topology
Substation33kv 12kv
33kv
Feeders (3 phase)
750kv
Large Industrialcustomer
Commercial& Industrial customer
Lateral (single phase)
TransformerTransformer
Home Home Home Home Home
TransformerAll single phase
Transformer
Typically 5 homes served by each of these transformers
Feeder (3 phase)
Feeder (3 phase) S Sectionalizer
RR
Reclosers
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Distribution: Substation MapHV line in (33kV)
EXAMPLE: SIMPLE LAYOUT
Disconnect switch
High‐voltage circuit breaker
Power transformer…
…with voltage regulating load tap changer at output
Breaker
Feeder breakers
Feeders(11kV)
HV line in (33kV)
Feeders(11kV)
Normally open
Normally open
BusBus
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Financial: How Utilities Recover Costs (PG&E Example)
Operating & Maintenance costs
Depreciation &Amortization
Other taxes
Return, interest,and taxes
Fuel & Purchased Power
DWRcontractcosts*
PGC charge
FERC/CAISO costs
Cost of ServiceComponent
Source: PG&E GRC filings
Rate component
▪ FERC/CA ISO costs
Rate-setting structure
▪ FERC jurisdictional transmission revenue requirements and CA ISO pass through costs
▪ Public Goods Charge
▪ Recovery of costs related to Energy Efficiency and other public good components (e.g., appliance and CFL rebates, customer care programs)
▪ DWR Revenue Requirement
▪ During the 2000-2001 CA Energy Crisis, the Department of Water Resources procured long term power for the utilities, which is recovered in rates
▪ Energy Related Recovery Account (ERRA)
▪ Filed twice a year, one forecast and one historical for fuel & purchased power costs▪ Has a balancing account mechanism to true-up for fluctuations between forecast
and actual costs▪ If costs are >5% of forecast, automatically triggers the process for a rate increase
▪ General Rate Case (GRC)
▪ Cost of Capital (COC)
▪ Special purpose balancing accounts
▪ Three year cycle, de-coupled from energy sales▪ Covers all Operations & Maintenance and other opex▪ Cost reductions/overruns within 3 year cycle flow to earnings
▪ Filed annually▪ Covers the allowed ROE and capital structure
▪ Created to recover costs of special one-time projects (e.g., AMI)▪ Generally have a fixed cap for expenditures, but under spent
portions are not recovered
• Utility accounting is complex (!)
• Rates are adjusted over time to provide cost recovery – and ensure that cost improvements flow back to rate payers
• Investment cost overruns are borne by the utility
• The combination of low reward for risk leads to risk aversion
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Financial: Measurements used for Billing
Measurement Description
Applicable for
• Based on energy consumed
• Measured in watt‐hours (Wh): a 40 watt light bulb operating for 2 hours will consume 80 Wh
• Usually appears as thousands of watt‐hours (kWh)
• Based on the maximum kilowatts needed at any instant over the course of the billing period
• Measured in watts and expressed at kilowatts (kW)
• The utility needs to have enough capacity available to meet demand, so they levy an additional charge
• Power factor is a ratio between the “real power” available to the customer (W) and the “apparent power” that the utility provides (volts*amps or VA)
• In a perfect world, the W = VA
• They are not the same in the real world because some devices (e.g., motors) create a sort of resistance (called reactance)
• To overcome this reactance, the utility needs to provide more VA for each W. The difference is called volts amps reactive (VAr)
• To pay for this extra generation capacity, utilities charge based on the power factor (W/VA) or the VAr.
Usage
Demand charge
Power factor(or VARs)
Residential and SmallCommercial
Large Commercial and Industrial
Yes Yes
No Yes
No Yes
Source: Detroit Edison Tariff Structure
Example PF penalty
Real power
Reactive power
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Example Electricity Rates: NC IOU Example (Duke Energy)
For environmental compliance, taxes and homeland security
For fuel purchases
For transmission
Source: Duke Energy
Flat rate for distribution
Additional distribution fee
Energy charge
Generation charge
Additional generation charges
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If you have any questions…Please email or call me:
John ChowdhuryPhone: 214‐213‐6226
[email protected]://www.smarterutility.com.
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Utility of the Future series
US Utility Industry and Regulatory Landscape