6/23/2016. Timeline of the US Electric Power Industry

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1 : The Five Things Every Electric Utility Should Be Doing Now South Carolina Association of Municipal Power Systems 2016 Annual Meeting Lisa M. Vedder, MPA, CIA, CCSA Principal Consultant June 20, 2016 About Willdan Willdan Financial Services is one of four operating units of Willdan Group Inc. 2 Timeline of the US Electric Power Industry

2 Timeline of the US Electric Power Industry 1879 Thomas Edison demonstrates the electric light bulb and generator & First commercial power station opens in SF 1882 Edison Pearl Street station, the first modern electricity generation station Timeline of the US Electric Power Industry 1895 First successful longdistance transmission of electricity in the south in Anderson SC The Electric City 1934 South Carolina Public Service Authority (Santee Cooper) created Timeline of the US Electric Power Industry What should we expect as the industry turns 140? 6 2

3 1. Decline of Coal Power 2. Natural Gas Power Expansion 3. Renewables Reaching Grid Parity 4. Growing Utility Load Defection 5. Utilities Entering the Solar Game 6. Rate Reforms 7. Grid Modernization 8. Expansion of Storage 9. Customer Focus 10. Evolving Utility Business Model 7 1. Decline of Coal Power Driven by: Mercury and Air Toxics Standards (MATS) Natural Gas Prices 2015 Clean Power Plan Source: 2016 EIA/Sierra Club 8 2. Natural Gas Power Expansion Source: NERC April

4 3. Renewables Reaching Grid Parity Source: EIA Renewables Reaching Grid Parity Solar Projections 20 states in states by 2020 under business-as-usual conditions Year 1 Bill Impact from Solar (2016) Source: GTMResearch February Renewables Reaching Grid Parity Wind Projections Source: DOE/Lawrence Berkely National Laboratory August

5 4. Growing Utility Load Defection Rocky Mountain Institute (RMI) study: Competitive grid-connected solar-plus-battery systems years By 2030, $15.4 billion per year Northeast residential defection Other Death Spiral Bypass 60 INSTITUTIONAL Wind Buyers: Microsoft, Walmart, Yahoo, Amazon Web Services, U.S. General Services Administration, Cornell University, Google, Apple, Oklahoma State University, Ohio State University, and the U.S. Air Force Corporate Solar Purchases of nearly 570 MW (2014): Walmart, Apple, Kohls, IKEA, Costco Source: Rocky Mountain Institute Study, April Growing Utility Load Defection SolarCity small- and medium-size business initiative Apple June 6 FERC application to sell excess solar at market-based rates Amazon Web Services NC contract for 208 MW Iberdrola Renewables wind project Hewlett Packard contract for 112 MW SunEdison wind for Texas data center Almost 100 million households worldwide may be powered by solar panels by 2020 Source: Techonomy and the World Bank 2016 (Boomberg New Energy Finance) Utilities Entering the Solar Game Georgia Power offering rooftop solar through an unregulated subsidiary Arizona Public Service and Tucson Electric Power have pilot programs for utility-owned solar CPS Energy solar hosting program Community Solar Source: GTMResearch, April

6 6. Rate Reforms Source: GTMResearch February Grid Modernization Current infrastructure aged over useful life 7,000 miles of transmission lines to comply with the Clean Power Plan (NERC estimate) Deployment of smart grid technologies required to support future grid (IEA estimates $2.1T investment by 2035) Expansion of Storage Game changer Stem and PG&E aggregation of customer-sited storage systems and bid them into the real-time energy market in the CAISO Kauai Island Utility Cooperative s 52 MWh SolarCity battery deal Duke Energy s nearly 15% percent of the US grid-connected, battery-based energy storage $100/MWH cost goal by 2020 Tesla Power Wall New market entrants SolarCity turnkey battery backup service includes Tesla Powerwall Source: GTMResearch 18 6

7 9. Customer Focus Only one in five public power customers under the age of 55 know that they get their electricity from a public power utility Customers think more about their utility when the power is OFF than when it is ON. (Michael Vigeant, CEO, Great Blue Research) Source: APPA 2016 National Customer Focus Technology driven changes to the traditional relationship Competition is not just other energy service providers Marketing and Branding Two-way communication New channels of communication Evolving Utility Business Model Led by states with high electricity prices and large amounts of distributed generation Hawaii, California, Arizona, Texas Southern Company via unregulated subs Increasing investments in utility-scale renewables Entering the rooftop solar industry in Georgia NRG/Comcast Energy Rewards program in Pennsylvania free HBO 21 7

8 10. Evolving Utility Business Model Source: Rocky Mountain Institute Study, April Timeline of the US Electric Power Industry What should we be doing today? 23 Number 1: Kick the Tires 24 8

9 Kick the tires Assess Your Infrastructure Current Inventory of Assets Enterprise Asset Management Optimize asset utilization Increase operational efficiency Achieve sustainable performance improvements Reduce operating costs Increase flexibility and responsiveness Update Capital Improvement Plan (CIP) 5, 10, 20 year planning horizons Incorporate resiliency considerations Evaluate Potential for Storm Impacts/Emergency Response Coordination and Communication GIS Staffing 25 Number 2: Transition Your Workforce 26 Transition Your Workforce Succession Plan Employees are your most important assets! 78 million baby boomers in the US 28% of the US population 68% of the existing work force 40 % of work force at America s electric and natural gas utilities eligible for retirement in the next five years about 20% eligible now The challenges associated with replacing the technical and institutional knowledge of these professionals will be significant Hard decisions must be made soon to preserve intellectual property for the future 27 9

10 Transition Your Workforce Succession Plan Consider creating a Heat Map Rethink approach to retention & recruitment Steps to reduce increasing turnover of newer and high performers Document, document, document to avoid brain drain Keep in touch with retired workers Consider internships 28 Number 3: Formulate Your Financial Plan 29 Formulate Your Financial Plan COS/Rates/CIP Update your financial plan Forward looking numerical representation of a utility s business plan and corporate strategy Identifies and forecasts key drivers impacting financial performance Integrates with other utility planning tools: Load Research Study Smart Grid (AMI) Data Feeder Data System Losses Study Resource Planning Study Distributed Generation Data Minimum System Study Lighting Study Accounting for Direct Assignment Load Forecasting 30 10

11 Formulate Your Financial Plan COS/Rates/CIP STEP 1 Establish Revenue Requirement STEP 2 Allocate Costs Conduct a Cost of Service Study & Review Rate Design Functionally Unbundle Production, Transmission, Distribution, Customer Classify Fixed, Variable, Customer Step 3 Design Rates Allocate to Customer Classes 31 Formulate Your Financial Plan COS/Rates/CIP CSS/RD Methodology Properly designed rates will generate sufficient revenues to equal the revenue requirement Customer Accounts Usage/Consumption Billing Frequency & Revenue Reconciliation Analysis Revenues Under Existing Rates Other Revenues Rate Design Total Revenue Requirements Operation and Maintenance Expense Debt Service Capital & Other Expenditures 32 Formulate Your Financial Plan COS/Rates/CIP 33 11

12 Number 4: Engage Your Stakeholders 34 Engage Your Stakeholders Two-way Communication Utilize new tools Customer Journey Maps diagram customer interactions with utility prioritize competing needs 35 Engage Your Stakeholders Two-way Communication Short attention spans Visuals are important Be proactive, consistent, and clear Speak their language Use multiple media Cover the breadth of your client base 36 12

13 Number 5: Set Your Strategic Course 37 Set Your Strategic Course Prepare/Update Strategic Business Plan A Strategic Business Plan is created through an interactive, stakeholder process Prioritizes resources & challenges/opportunities Markets Succession Environmental Sustainability Security Stakeholders Workforce Creates a roadmap for success Milestones Resources Owner 38 Set Your Strategic Course Prepare/Update Strategic Business Plan New solutions are constantly emerging SUMMARY OF UTILITY KEY ACCOUNT OFFERING EXAMPLES EXAMPLE UTILITY SUPPLY SITING CONTRACT PROGRAMS SOLAR AGGREGATION PILOT PROJECT Orlando Utilities Commission (FL) PPA between OUC and PV developers on participating commercial customer sites PPA with WAPA to purchase the unbundled solar electricity. Xcel Energy purchases the RECs APS would own and operate 14 MW PV system on Luke AFB Participating customers FORT CARLSON SOLAR ARRAY LUKE AIR FORCE BASE RATE PROGRAMS COMMUNITY SOLAR PROGRAM Western Area Power Administration, Colorado Springs Utility (CO) Arizona Public Service (AZ) Salt River Project (AZ) BRIGHT TUCSON COMMUNITY SOLAR PROGRAM GREEN SOURCE RIDER Tucson Electric Power (AZ) RATE SCHEDULE RG Dominion Virginia Power (VA) Contract between OUC and participating commercial customers for PV supply Customer (Fort Contract between Colorado Carson) Springs and Fort Carson for solar electricity sales Customer Contract between APS and Luke (Luke AFB) AFB for output PPA between SRP and PV Third Party developer for 20 MW PV system PPAs between TEP and various Third Party PV installations Duke Energy Carolinas (NC) Any SALES Various PPA between Dominion and Third Party renewable energy installations on behalf of participating customers Optional green tariff for business, industrial and education institutions Customer purchase energy blocks with fixed-rate 20-year contracts Customer pays for the renewable energy and receives a credit form Duke at its avoided cost rate Optional Rate Schedule RG for participating customers Source: SEPA 39 13

14 The Five Things Every Electric Utility Should be Doing Now Keeping The Flow of Energy Stable Kick the tires Assess your infrastructure Transition your workforce Succession plan Formulate your financial plan COS/Rates/CIP Engage your stakeholders Two-way Communication Set your strategic course Prepare/Update Strategic Business Plan 40 One Last Thought One of the advantages of being disorderly is that one is constantly making exciting discoveries. A. A. Milne 41 Contact Information Lisa M. Vedder, MPA, CIA, CCSA 200 S. Orange Ave. Suite 1550 Orlando, FL o: c: