Power Utilities in the Telecom Business in the USA: Past Failures and Future Trends
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Power Utilities in the Telecom Power Utilities in the Telecom Business in the USA: Past Failures Business in the USA: Past Failures
and Future Trendsand Future TrendsMike Oldak
Vice President & General CounselUtilities Telecom Council
World Bank Sustainable Development ForumEnergy Sector Day
January 21, 2010
[email protected] 833 6808
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Where Are We?Where Are We?
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Demand Projected To Demand Projected To Increase 40% 21% by 2030Increase 40% 21% by 2030
Sources: U.S. Department of Energy, Energy Information Administration
Bill
on k
iloW
atth
ours Recession
Impact?
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Margins Projected to Fall Below Margins Projected to Fall Below Minimum Target Levels (2007)Minimum Target Levels (2007)
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
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Coal Plant Cancellations / ClosingsCoal Plant Cancellations / Closings2006 - 20072006 - 2007
Source: NRDC: The Growing Trend Against Coal-Fired Power Plants; other publications
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View ForwardView Forward
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President Obama’s President Obama’s Energy / Environmental ViewsEnergy / Environmental Views
Climate ChangeClimate Change
EnergyEnergy Efficiency Efficiency Smart GridSmart Grid
Renewable PortfolioRenewable PortfolioStandardsStandards
25% by 2025
Overhaul of Federal Efficiency Codes
Increased Government Support
80% reduction by 2050 H.R. 2454 83% reduction by 2050 H.R. 2454 20% by 2020
In H.R. 2454 In H.R. 2454 and stimulus
package
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Utility Industry’s FutureUtility Industry’s FutureTied to The Smart GridTied to The Smart Grid
Smart Grid is
Smart devices and sensors from generator to end use consumer
New awareness and control over all aspects of the grid
Advanced communication linking all parts of the grid
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Utility Telecom Provides Unique Benefits Utility Telecom Provides Unique Benefits
Multiple Revenue StreamsMultiple Revenue Streams Aggregate demand response to reduce wholesale market prices Provide consumers with information and tools to optimize usage
Relieve congestion at transmission and distribution level Avoid or defer G, T & D infrastructure investments
Optimize use of existing resources Coordinate integration of new renewables and storage devices
Improve customer, distribution and grid reliability Use smart grid fiber / spectrum to support other broadband needs
Utilities are uniquely positioned to optimize the new smart grid and
maximize the benefits from smart grid investments
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Value For Consumers and UtilitiesValue For Consumers and Utilities
Baltimore Gas & Electric Baltimore Gas & Electric
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How Smart Grid and How Smart Grid and Smart Rates Can HelpSmart Rates Can Help
Critical Peaks
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Dynamic Peak Pricing: Weekdays Dynamic Peak Pricing: Weekdays (excluding Holidays)(excluding Holidays)
2Baltimore Gas & Electric 2009
Pilot Pricing All – in Rate*
Critical $1.30425Peak $0.14425Off-Peak $0.09425
* Includes generation, transmission and
delivery
$1.30
$0.14
$0.09
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Peak Time Rebate: Weekdays Peak Time Rebate: Weekdays (excluding Holidays)(excluding Holidays)
Schedule R summer rates are $0.14 / kWh for all summer hours Up to 12 critical peak days will be called by 6 p.m. the prior day Customers who use less during the critical period (2 – 7 p.m.) on any critical
peak day will receive a rebate. Two levels being tested: $1.75/kWh and $1.16/kWh
3Baltimore Gas & Electric 2009
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Hours in Each Summer Pricing PeriodHours in Each Summer Pricing Period
60 hours of higher “Critical Peak”
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Ba
16
Actual Load Shapes for Participants and Control Group during Critical Peak Event
Load Profile on CPP Day before and after Demand Response (July 17, 2007)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Hour
Load
(kW
h/H
r)
PTRH PTRH_ET_ORB PTRH_ORB Load Profile
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Summer 2008 Pilot Smart Energy Summer 2008 Pilot Smart Energy Pricing - Peak Demand Reductions *Pricing - Peak Demand Reductions *
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Orb & Switch
OrbOnly
No Tech
Orb & Switch
No Tech
Orb &
SwitchOrb &Switch
Orb &Switch
No Tech
No Tech
OrbOnly
OrbOnly
% C
hang
e in
Crit
ical
Pea
k D
eman
d
Low Rebate $1.16 /kWh
High Rebate$1.75 / kWh
DPP Rate
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Estimated BG&E Deployment CostsEstimated BG&E Deployment Costs$ 482 Million (2009-14) $ 482 Million (2009-14)
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$10 other
$329Meters and Modules
$99Information Technology
$14Communications
$30Smart Energy Pricing
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Customer Savings Greatest BenefitCustomer Savings Greatest BenefitProjected Life-cycle Saving >$2.6 BProjected Life-cycle Saving >$2.6 B
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$661
$580
$452
$408
$204
$117$104
$61 $49
Avoided Generation Capacity Cost
Capacity Price Mitigation
Energy Conservation
Operational Savings
Avoided Capital Expenditures
Avoided Transmission Infrastructure
Energy Price MitigationEnergy Revenues
Avoided Distribution Capacity Cost ($'s in millions)
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BG&E Residential Bill ImpactBG&E Residential Bill Impact
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$0.38 $1.09
$3.72 $3.78 $2.79
$2.36 $2.21 $1.83
$0.21 $0.57
$2.87 $2.63
$1.53 $1.19 $1.16 $0.91 $0.96
$0.47
($3.18)
($5.44)($6.32)
($10.12)
($9.01)
($14.00)
($12.00)
($10.00)
($8.00)
($6.00)
($4.00)
($2.00)
$0.00
$2.00
$4.00
$6.00
Residential Electric Customer Bill Impact$ Per Month
Avoided Capital Expenditures (revenue requirement)Avoided Transmission & Distribution InfrastructureEnergy Price Mitigation
Operational Savings (excluded from surcharge)Energy Conservation
Capacity Price Mitigation
Peak Time Rebates
Monthly Surcharge
Surcharge w/$200MM DOE Grant
Net Bill Impact
Over the life of the recovery period, the average monthly electric and gas surcharge is projected to be $1.24 and $1.52, respectively
$0.00
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Lesson from the PastLesson from the PastUtilities and TelecomUtilities and Telecom
In the 1990s utilities tried to compete with commercial telecom carriers – results were generally poor
Strengths of utilities Efficient construction of backbone energy and telecom system Ability to ensure highest reliability Able to finance huge projects at low-risk rates Operate in a regulatory environment where decisions will be subject to
review for both correctness and cost containment
Strength of commercial telecom carriers Willing to take risks and act quickly No need to seek regulatory review Part of core business Solid understanding of business models
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Role for Utilities Role for Utilities Leverage core capabilities
Build out system as a carrier’s carrier
Leverage existing assets Dark fiber Existing infrastructure Some utility technologies lend themselves, others do not!
Leverage economies of scope and scale Uniquely positioned to access multiple revenue streams from investments Relationships with local governments, authorities Ability to energize a large, geographically diverse workforce