Issues Affecting the Electricity T&D System in North America

Global Utility SummitLos Angeles, Nov 17, 2008

Presented by WK (Bill) Marshall

Senior Associate

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Personal Background

Retired President, nowIndependent Consultant

SPC

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Why Visit Southern California?

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System Development Challenge

Balancing the policy drivers

Consumers

Reliable Supply

Acceptable Environmental Prices Sustainability

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Complicating Factors

• Generation issues- Fuel costs and availability- Climate change (and other emission issues)- Renewable requirements

• Distribution issues- Demand response- Distributed generation- “Smart” components

• Transmission ownership, access and benefits

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Fossil Fuel Prices in $/MBtu(Conventional Unit Electricity Cost in Cents/kWh)

Source – US DOE NY Harbour HFO, NYMEX Appalachian coal, NYMEX Henry Hub natural gas

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

Coal

HF Oil

Nat Gas

2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008

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From David Hughes - NRCan

Forecast Demand

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From David Hughes - NRCan

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NE - Reliance on Natural Gas

Summer 2000 Summer 2006

Total: 30,931 MWTotal: 23,975 MW

OtherRenewables1,092 MW

4.6%

Pumped Storage1,679 MW

7.0%

Hydro1,626 MW

6.8%

Coal2,814 MW

11.7%

Nuclear4,359 MW

18.2%

Oil8,150 MW

34.0%

Natural Gas4,255 MW

17.7%

Oil7,549 MW

24.4%

Nuclear4,448 MW

14.4%

Coal2,846 MW

9.2%

Hydro1,691 MW

5.5%

Pumped Storage1,672 MW

5.4%

Other Renewables

922 MW3.0%

Natural Gas11,803 MW

38.1%

Note: Units in the “Other Renewables” category include those fueled by biomass, refuse, and wind.

Original Slide from ISO-NE

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Climate Change

• Growing international issue

• Increasing state and provincial issue

• Regional climate change initiatives- Northeast and west

• Targeted reductions- Kyoto – 6% from 1990 by 2012- Canada – 20% from 2006 by 2020- G8 – 50% from 2006 by 2050 (Electricity??)- USA - ?????

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Renewable Development

• Major wind increases- Texas, California, Mid West, Alberta, Maritimes

• Many aggressive state RPS requirements- Partly climate change strategy- Partly hedge on fossil fuels

• Possible national RPS of 20%

• Integration issues need resolution- Transmission access and delivery- Distributed distribution connections- Balancing

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14www.nbso.ca

NE States Seek Renewable Energy: Requirements to Increase 500%: 2006 - 2015

• 6.5% RPS requirement in 2015 equivalent to:

– 3,750 MW of wind, or

– 1,600 MW of biomass

• Proposed renewable projects in New England total 1,900 MW– Not all renewables qualify for

RPS

RPS Requirement as a % of Energy in New England (2015)

93.5%

6.5%

NE RPS RequirementNE Energy From Other Sources

Original Slide from ISO-NE

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Relative Transmission Costs

• Transmission benefits are large yet costs are relatively small

Total Electricity Cost

Transmission 6-10%

Distribution 15-30%

Generation 60-75%

Transmission

Distribution

Generation

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Transmission Benefits

• Increased Reliability• Lower system losses• Lower rates for end use customers• Reduced congestion• Improved competition• Greater supply diversity• Lower emissions• Environment siting of generation• National security

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Transmission Development

• Investment has lagged load growth

• Significant congestion has resulted

• Regulatory changes have not helped- OATT physical rights- Locational pricing and financial rights- Minimum interconnection standards

• Reliability margins have shrunk

• 2003 blackout focused attention

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Transmission Questions

• Why no investment?

• Why continued congestion?

• Some reasons- Cost differential across the congested interfaces- Winners and losers- Disproportionate value- Intra-state concerns- State versus regional interests

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New Transmission Paradigm

• Energy Policy Act 2005- Add Section 219 to Federal Power Act- Provide incentives for transmission development

• DOE identification of “National Interest Electricity Transmission Corridors” (NIETC)

• FERC incentive rule issued July 20, 2006- Higher ROE- 100% CWIP- Recover prudent pre-commercial costs- Approval by state or designation by DOE as NIETC not

required but worthwhile

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DOE NIETC East

Congestion in the Eastern

Interconnection

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Transmission Projects

SPC

NIETC Hydro Renewable Market

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Mandatory Reliability Standards

• FERC empowered through Energy Policy Act- Approve standards- Issue sanctions up to $1,000,000 per day

• Actions are a response to 9/11, 2003 Blackout and security concerns

• NERC designated “Electric Reliability Organization”

• Consequences?- Increased reliability- Increased equipment, labour and related costs

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“Smart” Grid

• Transmission actions- Reduce reliance on SPSs - Increase demand response for market and control- Improve SCADA systems

• Distribution actions- Real time monitoring- Two way smart metering and load control- Feeder balancing - Enhanced restoration and service

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Moving to the T&D Future

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HR - The Final Challenge

• Work force is old and retiring (CEA Study)- 50% of transmission workers will retire in 10 years- Only 7% of trades below age 30

• Looming shortfall at a time of significant growth with new technologies

• Challenge is huge- Transfer existing experience and knowledge- Train new workers with new and old skills- Work smarter- Do more with less

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Time For Action!

“When you get to the fork in the road, take it!”

Yogi Berra