Washington Ocean Energy Conference

Views of a Utility ManagerPresented November 8, 2011

Who am I

• I am a General Manager of a consumer owned electric utility located on the coast of Washington, but the views expressed here are my own

• My background is:– 11 plus years as GM– 22 plus years as an Electrical Engineer

• My job is to provide reliable electricity at the lowest practical cost

• My Utility has been in the power markets for almost 4 decades

View from the Old Grid

• The Grid was designed to be in –Load/Resource balance• Load determines resource requirements

– Base load is met with firm, base resources– Increased loads are met with reserves on a dedicated and

predictable basis– Worst resources penalized or rejected

• New resources are added as load demands– Conservation is valuable in delaying resource requirements

• Transmission is built as needed to serve loads• Transmission basically works well• Cost Control is a policy objective

View from a Newly Evolving Grid• Build resources based upon Public Policy objectives—not need

– A number of utilities now have excess resources and will have to get more

• Encourage the development and operation of renewable resources through incentives

• Incentives rather than Load growth drives the development of resources

• With excess resources, conservation is now becoming a costly problem

• Integration is driven by policy in spite of problems• Transmission and power are separated to a large degree• Transmission usually gets the blame even when I don’t believe it is the

problem• Cost control not a priority

Power Purchase Contracts

• Contracts used to be much simpler and were based upon:– Purchases among utilities– Few counter parties– No independent power producers– Little or no intermittent (wind, solar) resources

• What there was mostly existed under PURPA

– Utilities made the decisions– Utilities controlled the transmission (for good or bad)

• If you’re in the markets now you’ll need a lot more employees or consultants and contractors– Oh, by the way you better have transmission rights

What has changed in markets• Introduction of intermittent (wind and solar) resources• Various amounts of deregulation in the markets

– None, some and total (states and regions are different)

• Separation of power, and transmission within markets (you can have the water, but you better have the pipe to move it)

• Many different counter parties• Prices are based upon Natural Gas and heat rates• Utilities large and small have significantly higher costs• Resources that seem to have preference rights and expectation to generate,

regardless of problems or system security• Policy makers are getting much more involved in utility world with:

– Oversight of Integrated Resource Plans (IRP’s)– Enforcement of Renewable Portfolio Standards (RPS’s)– Obvious desire to push the utility industry towards specific resources

Concerns

• Adding additional large wind renewables before resolving some key technical issues:

• Transient stability• System response• Load resource imbalance• Voltage collapse—low voltage ride through(lvrt)• WPP collector issues• Harmonics and resonance• Undesirable dc loop flows

Concerns Continued

Insufficient System Flexibility• The need to reduce response time for conventional

generation• Turning demand into a flexible resource

– Why continue conservation when we desire to add instantaneous loads to absorb too much generation?

– Insufficient System Operational Tools• Need more accurate wind forecasts• More accurate real time information on generation levels• Constant assessments of the power system stability to

keep the power system secure (need to be able to turn off wind sometimes which is counter to incentives to operate)

Concerns Continued

– Offshore wind generators are much larger than onshore, usually 7MW’s per tower vs. 2.5MW’s

– Offshore wind generators are much more complicated to connect and to integrate

– Offshore wind is very costly to build and to connect to the system (likely billions of dollars)

Possible Solutions • Regional Transmission

Organizations (RTO)• FEED-IN-TARIFFS (TIF)• SMART GRID

RTO’s• The transmission system is often blamed for integration

problems– When the problem is usually that there is too much

intermittent generation in the wrong place creating those irritating technical problems

– The belief seems to be that more transmission solves all the problems, to me this is a lack of understanding of technical problems

• Shouldn’t we have a Regional Transmission Organization to solve the problem?– Some areas think so but this was rejected in the West several

years ago for a number of reasons, but that apparently is old grid stuff

RTO’s Continued

• It was regionally determined during anti RTO campaign (WECC wide Grid West was created as alternative) back in 2002 that an RTO would have:– Startup costs of at least $80 million– Annual operating costs of $125-150 million– Taxing authority of $160-210 million annually– Would not necessarily get much for that as it basically

becomes a market bidding and clearing entity• Why would generation developers like RTO?

RTO’s Continued:• Developers probably like this concept because with an RTO much of the

financial burdens of transmission expansion for renewable projects is removed from the generators through a cost allocation system. With this system the cost is assigned to the loads served by those transmission systems, not to the developers.

• These transmission systems are very expensive and offshore dc systems are even more so, but from whose perspective the beneficiary or the payer

• We don’t have sufficient loads in the NW to absorb this so they appear to be targeting California which would require a 1100+ mile submerged 500kV direct current (dc) cable (about $2.3 billion)– This also requires two very large and complicated intertie substations to connect to

existing grids (about $500 million)• To my knowledge no one has studied the impacts to marine life of this type

line over that distance and dc has a nasty objection to being interrupted especially at very high voltages and now its underwater

RTO’s Continued• Federal Energy Regulatory Commission’s recent order 1000

– New transmission can be built:• Not just for least cost reasons• Not just for reliability needs• Can be built now because it is good Public Policy

– Who stands to benefit from this?• Developers who build generation where it is not needed so they can get the energy to distance

loads.• Does this mean the distant grid can do any better at integrating this resource than the local grid?

• Europe is held up as a good example yet most European Utilities are national entities, so the work being done there falls on the citizens as added costs. I worry that this is the direction we’re heading when things become based upon some ones interpretation of good Public Policy. Is this a good thing? I certainly don’t know but I wonder

Feed In Tariffs (FITs)

• Feed in Tariffs are fees paid to individuals or businesses that install renewables that can be net metered or integrated into the electric grid at the local level

• These are great for those who receive them but expensive for ratepayers who absorb the costs

• Germany is one of the models for this:– In Germany the FIT for renewables is 0.50 Euros or $0.70 US. – Germans pay their national utility a high rate per kwH

• In 2010 it was 0.229 Euros or $0.32 US• In 2011 this was 0.267 Euros or $0.37 US (a 15% inc)

Denmark-A case study for Renewables

• Denmark's wind penetration is 28% in the west and 13% in the east– California is aiming for 33%

• To integrate wind, they mostly use natural gas and because of this they have one of the highest CO2 footprints in Europe (Denmark is flat and has no hydro).– Now for load increases to absorb wind the Danes are looking at electric

boilers at CHP’s, is this conservation

• The Danes electricity rates:– In 2010 it was 0.255 Euros or $0.357 US– In 2011 it is 0.2947 Euros or $0.41 US (a 15% increase)– Europe avg. in 2011 was 0.165 Euros or $0.23– In Washington the avg. is around $0.075 (82% less than the Danes,

80% less than Germany and 64% less than Europe)

Smart Grid to the Rescue

• Technology is making the system more responsive and reliable

• We are getting better at more real time operation• We are getting smarter at how we run the

system, but the term “Smart Grid” is more hype than fact, at least as it exists now

• We cannot defy physics and intermittent resources present real time problems that must be solved

Jobs Creation

• Lets make sure any job creation is permanent and worth the public money put into it if that’s the point

• We should ensure in this struggling economy that we don’t sacrifice jobs in other industries to promote one or two industries

• Does this generate a lot of jobs?– Michelle Malkin reported that in Spain:

• Every green job created resulted in the net loss of 2.2 jobs.• Only 1 in 10 of those green jobs became permanent• The study was done by Dr. Gabriel Calzada, an economics professor

at Juan Carlos University in Madrid

Conclusion• If this is about permanent job creation and business in the NW and not

being just a distant resource it would be a good thing, but I’m very concerned that this would not be the case. Whatever we do with jobs should be permanent not just a flash in the pan

• Our economy is not growing and loads are declining. Adding expensive renewable cost burdens doesn’t make economic sense at this time

• There are many problems associated with intermittent generation that must be solved before we build more and make a much bigger problem– We can’t always override physics

• Public Policy will ultimately determine what happens, I just hope that all elements and costs are considered so that we make wise policy decisions