Electric Industry Infrastructure Issues and Electric Industry Infrastructure Issues and What It Means to the Grocery IndustryWhat It Means to the Grocery Industry

Steve KiesnerDirector, National Customer Markets

Edison Electric Institute

Food Marketing InstituteEnergy and Technical Conference

September 9, 2008

Energy LandscapeEnergy LandscapeSupply margins are declining and demand is increasing

Need significant infrastructure investment but costs increasing rapidly$750 -900 Billion: Exceeds current capitalization Major baseload generation and transmission is needed asap

No longer a declining cost industry

Rate Cases are on the Rise 35=‘06; 40=‘07; 50+ =’08; rate freezes expire in Va., Pa, Ohio Fuel costs to rise over the next several years, demand for nat gas grows due to reliance on peaking facilities to meet NT-term increases in demand

Increasing concerns about the environment

Energy efficiency is viable option: Low hanging fruit for Climate Change

Understanding the Core Drivers of Rising Costs

Demand Projected To Demand Projected To Increase 30% by 2030Increase 30% by 2030

Sources: U.S. Department of Energy, Energy Information Administration, Annual Energy Review 2006and Annual Energy Outlook 2008 Early Release*Electricity demand projections based on expected growth between 2006-2030

Billo

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Some Causes for Rising DemandSome Causes for Rising Demand

Increasing population 11.18% in 10 years

Increased economic growth 50.1% in 8 years

Increased number of homes with central A/C 49% in 9 years

Plug-in loads

Average US household owns 26 consumer electronics products

Commercial facilities are much bigger and have more energy intensive

U.S. Electrical Infrastructure:Generation and Transmission

7

Margins Projected to Fall Below Margins Projected to Fall Below Minimum Target LevelsMinimum Target Levels

TRE (ERCOT)2009/2016+

New England 2009/2009

RFC (MISO)*2008/2008

AZ/NM/SNV2009/2011

California2009/2012

Rocky Mtn2008/2011

SPP2015/2016+

MRO2009/2009

(US)

New York2011/2016+

RFC (PJM)2012/2014

*Excludes MISO resources outside the RFC boundary

Source: NERC 2007 Long Term Reliability Assessment

What Powers our Plants?What Powers our Plants?

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*”Non-Hydro Renewablesand Other” includes generation from solar, wind, geothermal, biomass (agricultural waste, municipal solid waste, landfill gas recovery, wood, pitch), hydrogen, batteries, chemicals, non-wood waste, purchased steam, sulfur and miscellaneous technologies.

Sum of components may not add to 100% due to independent rounding.

Source: U.S. Department of Energy, Energy Information Administration, Power Plant Report (EIA-920), Combined Heat and Power Plant Report (EIA-920), and Electric Power Monthly (2006 Preliminary).

Different Regions Of The CountryRely on Different Fuel Mixes

Source: NERC Transmission Loading Relief Procedure Logs

Transmission Congestion Transmission Congestion Dramatically Increasing Dramatically Increasing

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her T

LRs

Requests for transmission loading relief (TLRs) in the Eastern Interconnection

2007

20012001

20032003

20052005

Aging Transmission InfrastructureAging Transmission Infrastructure

70 % of transmission lines are 25 years or older

70 % of power transformers are 25 years or older

60 % of circuit breakers are more than 30 years old

“Rising Utility Construction Costs: Sources and Impacts” Edison Foundation/Brattle Group

Reporthttp://www.globalenvironmentfund.com/GEF%20white%20paper_Electric%20Power%20Grid.pdf

Existing Net Plant in Service $750 Billion(1)

Significant Electric Capital Investment Significant Electric Capital Investment RequiredRequired

1. End of 2006. 2. 2006 dollars

Conservation and Efficiency

$50 billion

Generation$350

billion for

230+ GW

Environmental Retrofits

$50 billion (excl. CO2 ~$300B?)

Transmission$150 billion

Distribution$300 billion

Transmission$90 billion

Generation$350 billion

Fuels$8 billion

Regulatory Assets$60 billion

Distribution$240 billion

Investment Need for Next 15 Years: $900 Billion

Source: Lehman Brothers. July 2007

(2)

Raw Materials Price IndexesRaw Materials Price Indexes

Coppe

r 400

%20

03-6

Fuel Costs Increasing DramaticallyFuel Costs Increasing Dramatically

Source: U.S. DOE/EIA Electric Power Monthly, March 2008 ReleaseTable 4.1-based on $/MMBtu Delivered Cost

1999 – July 2008

Fuel Costs – Uranium Skyrockets

Higher worldwide demand and a fear of future shortages have driven the price of processed uranium ore (yellow cake)$7 lb at the beginning of 2001$10 lb in 2003$36.25 at the beginning of 2006 $72 at the beginning of this year. Weekly spot price $138 lb this monthChina and India drivers

Nuclear Power in the US104 commercial reactors: 30+ applications for new permitsNRC streamlined licensing process to make timelier, more comprehensive decisions about proposals. Developed standardized designs for plants to reduce construction and operating costsEmerging Issues

$5 billion to $12 billion to build a plant, double to quadruple earlier rough estimates.Permanent Waste DepositoryShrunken supplier, operational network for the industry

Wall Street Concerns: Rival technologies could again make nukes white elephants.

A drop in prices for coal and natural gas, now very expensive, could make nuclear plants less attractive.

Nuclear Power Plants Nuclear Power Plants Planned and OperatingPlanned and Operating

Nuclear Power WorldwideNine countries get 40% or more of their electricity from nuclear powerBut worldwide, it supplies only 17% of the total.80% in France. China 2.3 % nuclear, but it intends to spend $50 billion to build 32 nuclear plants by 2020.A MIT report said China may have to add as many as 200 nukes by 2050. IEA report estimated that the world needed to construct 32 new nuclear plants every year from now until 2050 in order to help cut global GHG emissions by 50%

Coal Plant Cancellations / ClosingsCoal Plant Cancellations / Closings2006 2006 -- 20072007

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

Reasons for CancellationsReasons for CancellationsUncertainty over cost of future CO2 emission requirements

Green movement - changing attitudes of consumers and policy makers

Rapidly rising construction costs

New emphasis on renewables, energy efficiency and demand response

Unknowns and risksUtility management becoming more averse to additional risk

Bottom line a “Dash to gas!”

Energy Efficiency Can Reduce Energy Efficiency Can Reduce Investment by 5% to 18% in 2030Investment by 5% to 18% in 2030

Summary of Avoided Capital Investment Due to EnhancedEfficiency Illustrated Using "No Carbon Policy" Scenario

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"No Carbon Policy"Scenario

RAP Efficiency Scenario

MAP Efficiency Scenario

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of D

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AMI Investment

$19 BGeneration Investment

$512 B

AMI Investment

$27 BGeneration Investment

$430 B

Total Investment $559 B

Total Investment $531 B

(5% Reduction)

Total Investment $457 B

(18% Reduction)

21RAP-- Realistic Achievable Potential MAP-- Maximum Achievable Potential

Natural Gas InfrastructureNatural Gas InfrastructureDistribution $5.3 billion / year

Net distribution gas plant = $46.6 billion

Transmission $2.4 billion / year Net transmission gas plant = $50.1 billion

Natural Gas Exploration / Supply $47.2 billion

National Petroleum Council’s 2005 report, Balancing Natural Gas Policy

Worldwide Electricity Demand GrowthWorldwide Electricity Demand Growth

Source: Energy Information Administration, International Energy Outlook 2006

Net Electricity Consumption

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1,000

2,000

3,000

4,000

5,000

6,000

7,000

2003 2015 2030

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U.S. China OECD Europe India

USA

CHINA

Worldwide ElectricityWorldwide ElectricityIn 2007, China built just over 100 GW of new power generating capacity.

Coal-fired electric power stations comprised about 70 GW of this total.In 2006, they added 116 GW, with 93 GW of coal-fired capacity built.China built 1 new coal-fired electric power station about 2 days (IEA,2007).India: 130 GW now, plans for 780 GW by 2030 (about 30 GW every year)Both: Electric use growth rates > 8-10%+ / yr

MidEastern and South American Growth is noteworthy too!

ChinaChina’’s COs CO22 Emissions Emissions Surpass U.S. in 2007Surpass U.S. in 2007**

* Based on projected data from the International Energy Agency, November 2007.

Renewables

An Intensified An Intensified Commitment To RenewablesCommitment To Renewables

Renewables accounted for 69% of the total new capacity added in the first 4 months of 2008

Wind is fastest-growing renewable

T Boone = 4000 MW

Wind farms operate in 32 states with > 10,000 MW

2007

Note: Numbers exceed 100% due to rounding.Source: U.S. DOE/EIA Form EIA-906, Power Plant Report, Form EIA-920 Combined Heat and Power Plant Report; 2005 preliminary data*Includes agricultural byproducts, landfill gas, municipal solid waste, sludge waste and tire-derived fuels.

What Will It Take?

States with the Most RenewablesStates with the Most Renewables

Operating NonOperating Non--Hydro RenewablesHydro Renewables

Operating and Planned WindOperating and Planned Wind

Electricity Generated from RenewablesElectricity Generated from RenewablesChallenges:

High initial capital costs Need tax credits or other incentivesMarket is coming to the rescue

Intermittent nature of supply (i.e., wind and solar)

Transmission availability

Frequent expiration of production tax credit

Environmental and aesthetic challenges

Geographic limitations

Wind Power

Source: NREL, Wind Energy Resource Atlas of the United States

Solar Radiation – Tracking Concentrator

Source: NREL

Geothermal Resources

Source: NREL, Geothermal Resources Estimates for the US, Technical Report, NREL/TP-840-40665, Nov. 2006

Biomass Resources

Source: NREL

Climate Change

U.S. Green House Gas Emissions U.S. Green House Gas Emissions By SectorBy Sector

Industry19%

Commercial7%

Residential6%

Agriculture7%

Transportation28%

Electricity Generation

32%

U.S. Territories1%

Controlling Greenhouse Gas (GHG) Controlling Greenhouse Gas (GHG) Emissions Emissions –– Current StatusCurrent Status

Congress seriously considering legislation aimed at reducing GHG emissionsClimate Change legislation favored byn both candidates “Inaction on this issue is not an option..” Chairman Backus, Senate Finance Committee

Goals in CO2 emissions cuts range from 50% - 80% by 2050

Supreme Court rules that carbon dioxide is a pollutant under the Clean Air Act

EPA to regulate!

Some states, such as California, have adopted comprehensive policies to limit GHG emissions

Key Questions In GHG DebateKey Questions In GHG DebateTargets and timetable for GHG reductions?

Include all sectors of the economy and all sources of GHG?

Will the development and deployment of needed technologies be ready to address compliance timetables?

Mechanisms to achieve cost-effective GHG reductions? Cap and trade (w/ or w/o safety valve), tax, hybrid?

Controlling Greenhouse Gas (GHG) Controlling Greenhouse Gas (GHG) Emissions Emissions

How do you …

Establish the price of carbon?

Minimize economic disruptions?

Ensure that low income consumers do not shoulder a disproportionate impact?

Recognize early actions / investments made to mitigate GHG?

Take into account unintended aspects of GHG emissions? Jobs? Trade balances? Cost of goods and services?

There Is No Silver Bullet!There Is No Silver Bullet!

What Will It Take?What Will It Take?

RenewablesEnergy EfficiencyClean Coal TechnologiesCarbon capture and storageNuclearPlug-in hybrid electric vehicles

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1990 1995 2000 2005 2010 2015 2020 2025 2030

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EIA Base Case 2008

Technology EIA 2008 Reference Target

Efficiency Load Growth ~ +1.05%/yr Load Growth ~ +0.75%/yr

Renewables 55 GWe by 2030 100 GWe by 2030

Nuclear Generation 15 GWe by 2030 64 GWe by 2030

Advanced Coal Generation

No Heat Rate Improvement for Existing Plants

40% New Plant Efficiencyby 2020–2030

1-3% Heat Rate Improvement for 130 GWe Existing Plants46% New Plant Efficiency

by 2020; 49% in 2030

CCS None Widely Deployed After 2020

PHEV None 10% of New Light-Duty Vehicle Sales by 2017; 33% by 2030

DER < 0.1% of Base Load in 2030 5% of Base Load in 2030

EIA Base Case 2007

COCO22 Reductions Reductions ––WhatWhat’’s Technically Feasible? s Technically Feasible?

Achieving all targets is very aggressive, but potentially feasible

(EPRI Prism (EPRI Prism –– With EIA Update)With EIA Update)

Range of Potential Impacts Range of Potential Impacts From Climate Legislation?From Climate Legislation?

Cost per household $446 - $2927 in 2020 / year

Electricity prices 21% - 35% in 2020

Natural gas prices 20% - 39% in 2020

GDP 0.7% - 1.74% (~ $336B out of $~19.2T GDP)

Coal consumption 42% - 66% in 2020

Permit prices ($ / ton CO2 equivalent) $18 - $48 / ton in 2020

Total US GHG emission (mmtCO2-equivalent) 4887 – 6654 in 2030 (“Business As Usual” 9672 in 2030)

It’s All About The Assumptions!

WhoWho’’s Assumptions Are Right?s Assumptions Are Right?Wide RangesWide Ranges

New Renewables 6 GW <–> 176 GW by 2030

Coal w/ Carbon Capture and Storage 25 GW <–> 250 GW by 2030

New Nuclear 3.5 GW <–> 268 GW by 2030

Energy EfficiencyMajor impact – How much?

Offsets 15% domestic only <–> 30% domestic and international

The Challenge of New TechnologiesThe Challenge of New TechnologiesSupply technologies

Clean Coal Technologies – IGCCAdvanced new nuclearDistributed generationRenewables

Demand technologiesSmart / energy efficiency devices

Appliances, buildings / codes, thermostats, meters

Energy storage / transportationPlug-in Hybrid Electric VehiclesThermal energy storage

How do we fund their development?

Challenge:Challenge:Technologies and TimeframesTechnologies and Timeframes

Clean coal technologiesNot commercially available until 2015

Carbon capture and storage (CCS) technologies Not commercially available until 2020-2025

Deployment of nuclear plantsNot possible until 2015 at earliest

Summary:Summary:Challenges Are PlentifulChallenges Are Plentiful

Supply margins are declining and demand is increasingNeed significant infrastructure investment but costs increasing rapidly

No longer a declining cost industry

Energy efficiency is viable option

Increasing concerns about the environmentPotential impacts from climate legislation Need to accelerate development and deployment of new technologies

Changing political landscapeBoth candidates concerned about GHG

Steve Kiesner202-508-5414

skiesner@eei.orgwww.eei.org/na