Electric Utility Primer

UtilityoftheFutureseries2012
US Utility Industry and

Regulatory Landscape
2012Smarterutility.com|Nottobereproducedwithoutpermission
Page:1
WhatsInThisResearch
US
Electric
Utility
Key
Value
Steps
USUtilityIndustryand
RegulatoryLandscape
KeyUtilityProcesses
Valueof
SmartGrid
HowSmartGridcanBenefit?
HowcanyouProfitfromit?
Page:2
USElectricUtilityPrimer2012
Whyyoushouldconsiderthisreport
UnderstandUSElectricIndustry
RegulatoryLandscape
KeyUtilityProcesses
HowSmartGridcanBenefittheIndustry
ExampleComponents
3/28/2012
Page:3
USElectricUtility101
JohnChowdhury:
hasbeenworkingintheUtilityIndustryforthelast23years
HisclientsincludesCenterPoint,SanDiegoGas&Electric,APS,
SouthernCaliforniaEdison,Vectren,TXU,NIPSCOtonameafew
ObjectivesofSmarterUtility.com:
CreateaFederatedKnowledgeRepositorytotake
advantageofknowledge,regardlessof whereitishoused
Supportmultiplechannelsfromasingleknowledge
repository(CountryStateCityUtilityRegulatorPartner
Vendoretc.)
Knowledgerepository isbased onthecontextandintent
ToLeverageSubjectMatterExpertstoimproveyour
successfactors
AdaptiveKnowledgearchitecturethatwillsupportallyour
needswitha singlerepositoryandremainflexibleto
changeasneeded
UsetheAdaptiveKnowledgearchitecturetosupport
Transparencyofknowledge,Cloud computing,Mobile
presentation,andSocialuseofknowledgewith
no additionalchanges
ItsaboutSuccess,andKnowledgeSharing
Page:4
Contents
Electricutilityindustryoverview
Industrystructureandvaluechainsteps
Marketandutilitytypes
Regulatoryoverview
Overviewofeachvaluechainstep
Factorsthatincentivizeelectricalutilities
BenefitsofSmartGridforelectricalutilities
Appendix
3/28/2012
Page:5
Thereare3CorePhysicalElementsoftheElectricUtility
ValueChain
Generation
Role
Startandend
points
Transmission
Distribution
Convertfuelenergyinto
electricalenergy
Increase(stepup)
voltageforefficient
transmission
Transmitelectricityover
longdistances
Deliverelectricityto
largeindustrial
customers
Reduce(stepdown)
voltage
Deliverelectricitylocally
tocommercialand
residentialcustomers
Fromfueltothehigh
voltageoutputofthe
generatingstation*
Fromthehighvoltage
outputofthegenerating
stationtothe
transformerinthe
substation*
Fromthesubstation
transformertothe
customermeter
Fuel
*Someutilitiesconsiderthestepupandstepdowntransformertobepartofthetransmissionnetwork
6
3/28/2012
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ExamplesofElectricUtilityAssets
Generation
Transmission
Distribution
Transmission
substation
Coal
Distribution
wires&
Lowvoltage
transformer
Naturalgas
Padmountgear
Nuclear
765KVtransmission
lines
Hydroelectric
230KV
transmission
lines
Residential
meters
Generation
transformer
Substation
3/28/2012
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IntheBeginning,UtilitiesWereGrantedMonopolyStatus
withOversightbyRegulators
Utilities
(Electric,Gas,Water,Telephone,Railroad)
Grantedmonopolystatusduetoeconomies
ofscale
Regulator
Approvedcapitalinvestmentplansand
operatingcosts
Allowedrecoveryofreasonableand
necessaryoperatingcosts
Allowedreasonablereturnoninvested
Ensuredexcessivecostsborneby
utilityinvestors
Requiredutilitytosupportsocialgoals
capital
3/28/2012
Page:8
OverTimeSomeStatesDeregulatedandBrokeUpthe
Monopolies
Untilthelate70s
Utilitiesactas
monopolies
Mid90s early00s
Late70s mid90s
Oilshockleadstopushfor
lowerenergycosts
Environmentalawareness
increases
Generationnolongerseen
asanaturalmonopoly
Independentpower
producers(IPP)emergein
somestates
Existingutilitiesbecome
hesitanttobuildcapacity
Governmentpushesto
deregulatemany
industries
Somelargecommercial
userspushfor
deregulationinhopesof
lowerprices
Somestatesbeginto
Early00s today
Regulatorsattemptto
achievelowerprices,
butseveralbackfire
Deregulationstalls
Regulatorsattemptto
encourageutilitiesto
buildgenerationand
saveenergy
deregulate CAisfirst
Independent
organizationsarecreated
tooverseeaccessto
transmission&
wholesalepower*
Energyretailersare
createdinsomestates
*IndependentSystemOperators(ISOs)andRegionalTransmissionOrganizations(RTOs)
3/28/2012
Page:9
WholesaleandRetailBusinessesEmergedDueto
Deregulation
Transmission
Generation
Generation
Purchasefuel
andproduce
power
Wholesale
trading
Facilitatebuying/
sellingofpower
between
Generationand
Retailplayers
Transmission
Transmit
powerover
long
distances
Distribution
Distribution
Deliver
powerlocally
tocustomers
Retail
Sellpowerto
customersand
handlebilling
Page:10
Thereare3TypesofElectricUtilityMarketsAcrosstheUS
Regulated
Un-regulated
MarketType
Generation
Wholesale
trading
Transmission
Distribution
Retail
Fully
regulated
Examplemarket
Alabama
Fully regulated Utility
Utility Holding Company
Deregulated
Generation
subsidiary
IPP*
Trading
subsidiary
Wires / T&D Utility
Texas
Retail
subsidiary
Utility Holding Company
Hybridregulated
Generation
subsidiary
Hybrid-regulated Utility
California
IPP*
* IPP = Independent Power Producer
Page:11
MostStatesareStillRegulated
Regulated
Deregulated
Hybrid
Regulated:34
Regulated:34
Deregulated:16*
Deregulated:16*
Hybrid:1
Hybrid:1
*IncludesWashingtonDC,6statesarederegulatedbuthavearatecaporstateoversightofrates(AZ,MI,NH,OH,PA,RI)
Source:USATodayAug10,2007
3/28/2012
Page:12
ThereAreAlso3TypesofElectricUtilityCompanies,
DifferentiatedByOwnershipType
InvestorOwnedUtilities
(IOU)
Publiclytradedcompany
Electricityonly
OneofUSslargestgeneratorsof
electricity(38GW)
USlargestelectricitytransmission
system(39kmiles)
Statesserved:AK,IN,KY,LA,MI,OH,
OK,TN,TX,VA,WV
Regulatedaccordingtoeachstates
regulatoryframework
210 IOUsintheUS(7%ofUSutilities)
Serve105M customers(74% oftotal)
MunicipallyOwnedUtilities
(Munis)
Cooperatives
(Coops)
Ownedbycustomers
Electricityonly
RegulatedbyanelectedBoardof
Directors
6th largestpubliclyownedutility
3.3GWpeakcapacity
Owntransmissionanddistribution
ServeSacramentoCountyanda
portionofPlacerCounty
Ownedbycustomers
Electricityonly
Regulatedby10personelected
BoardorDirectors
Operatesin14countiesnorthand
westofAustin,TX
2009 Munis intheUS(65%)

Serve14% ofcustomers
883 CoopsintheUS(28%)
Serve12%ofcustomers
Source:EIA,aep.com,smud.org,bluebonnetelectric.coop
3/28/2012
Page:13
IOUsareInfluencedbySeveralStateandFederalEntities
(CAexample)
Federal
Reliabilityofinterstateelectricitytransmission
Interstateelectricitysalesandwholesale
electricrates*
State
Servicestandardsandsafetyrules
Utilityratechanges
Monitoringanticompetitivebehavior
Energyefficiencyandconservationprograms
Programsforlowincomehouseholds
Nationalstandardsrelatedtoairandwater
quality
Statestandardsrelatedtoairandwaterquality
Proposedconstruction
Reactorsafety
Reactorlicensing
Radioactivematerialsafety
Promotingenergyefficiency,renewables
Licensinglargethermalpowerplants
Theseorganizationsareindependentoftheutilities
*Alsoregulateinterstatenaturalgasandoiltransportandsales
3/28/2012
Page:14
SomeUtilitiesOfferMorethanElectricity
UtilitiesOfferingDifferentServices
Count(fromasampleof213largeutilities)
INDICATIVEESTIMATE;
NOTCOMPREHENSIVE
Electricityonly
IOU
24
52
Electricity&Gas
Electricity&Water
Coops
Electricity&Gas&
Water
76
2/3ofIOUsoffer
electricityonly,mostof
therestalsooffergas
Coopsarelargely
designedtoproviderural
electricity
~1/2ofMunis offer
electricityonly,whilehalf
offerelectricityand
water
Munis
30
3/28/2012
20
26
40
60
80
100
Page:15
Contents
Generation
Wholesale
TransmissionandDistribution
Retail
Appendix
3/28/2012
Page:16
Generation:PowerPlantsConvertFuelEnergyinto
ElectricalEnergy
Chemical,atomic,
thermalenergy
Electricalenergy
Mechanicalenergy
text
text
steam
Magnet
text
text
Fuel
Furnace /
Boiler
Mostelectricityin
theUSisproduced
insteamturbines
Inafossilfueled
steamturbine,the
fuelisburnedina
furnacetoheat
waterinaboilerto
producesteam
Alternating current (AC)
Spinning turbine
Turbineconvertsthe
kineticenergyofa
movingfluid(liquidor
gas)intomechanical
energy
Steamhitstheblades
androtatestheshaft
connectedtothe
generator
Thegeneratorhasastationary
cylindricalconductorthatiswrapped
withacoil(wire)
Theshafthasamagnetattachedtoit,
whichrotateswithintheconductor
Whenthemagnetrotates,itinduces
anelectriccurrentinthewire
Page:17
Generation:Coal,NaturalGasandNuclearGenerate90%+
ofUSElectricity
USElectricitygenerationbysource,2008
Percent
4,110TWh
100%
Other*
90%
OtherGases
80%
Petroleum
70%
Other
Renewables
Hydroelectric
Conventional
Nuclear
60%
3%
6%
20%
GenerationofOtherRenewables,2008
Percent
123TWh
100%
90%
12%
80%
70%
42%
21%
60%
50%
50%
40%
40%
NaturalGas
30%
30%
Coal
20%
20%
10%
10%
0%
0%
49%
*Includeshydropumpedstorage
Source: EIA
1%
Solar/PV
Geothermal
Wind
Biomass
45%
Coal+NaturalGas+Nucleargenerate90%+
Coalisthedominantsource,almost50%ofgeneration
Nonhydroelectricrenewables makeuponly3%
Page:18
Generation:ElectricityDemandFluctuatesThroughoutthe
DayandYear ThisRequiresEnergySourceswithVarying
LevelsofFlexibility
Daily(peakday)
ILLUSTRATIVE
MaximumPeakload
Annual
Capacity
Reservemargin
Unpredictable
demand
Sourcesmustbe
abletostart
quickly orbe
heldinreserve
Resultingenergy
costishigh
Peakload
Semipredictabledemand
Energysourcesmustbeflexibleto
followchangesindemand
Cyclingload
Demand
Minimumload
Midnight
Noon
Midnight
Baseload
3/28/2012
1/1
12/31
Predictablelevelofdemand
Addressedbyverylargepowerplants
thatproduceenergyinexpensively
whenoperatedcontinuouslyathigh
utilization(youcantjustcrankthem
upanddownwithdemand)
Page:19
Wholesale:FacilitatesMatchingDemandwithSupply
ILLUSTRATIVE
Demand
Daily;MW
Additionalpowermay
needtobeacquired
throughwholesalemarkets
tomeetdemand
Demand
curve
Peakload
capacity
Cyclingload
capacity
Supplyavailableatagiven
timemaynotexactlytrack
demand.
Excesspowermayneedto
besoldoffthrough
wholesalemarkets
Baseload
capacity
TimeofDay
Thelackofefficientstorageforelectricitycreatestheneedto
matchdemandandsupplyinrealtime
3/28/2012
Page:20
Transmission:NERCDividestheNationsTransmissionand
Distributioninto3Interconnections
Eastern
Interconnection
Western
Interconnection
ERCOT
Source: FERC
ERCOT
Interconnection
Eachinterconnectioneffectivelyactsasanindependentgridsystem,withlimited
powercrossingbetweenseams
Source: EIA
Page:21
TransmissionandDistribution:DeliverPowerfromPower
PlantstoCustomers
Highvoltagetransmissionlinestransportpowertodistributionsubstations
Becausetransmissioninfrastructureimpactssomanycustomersdownstream,
transmissionhasbeenequippedwithsmarttechnologies(sensors,automated
controlsandcommunications)formanyyears
Thedistributionnetwork
deliverspowerover
medium andlowvoltage
powerlines
Transformers(thatlook
likebigbucketshungon
powerpoles)further
reducethevoltageto
normalhousehold
electricalservice
Thedistributionnetwork
includestheelectricity
meter
Page:22
Retail:ElectricalUtilityCustomersandConsumption
Averagesalespercustomer(MWh/yr)
CustomersbySector,
2007*
Percent,100%=142M
0.0%
0.6%
12.2%
100%
90%
ElectricalEnergySales
bySector,2007
Percent,100%=3.7M GWh
0.2%
11,000
27.4%
1,300
80%
Transportation
70%
Residentialcustomersmake
upalmost90%ofall
customers.Commercial
customersmakeupalmost
alloftherest.
AlthoughResidentialisthe
biggestsectorbysales(in
otherwords,consumption)
at37%,salesaremore
evenlydistributedacross
sectors
Netresultaveragesalesper
customerisverylowfor
Residentialrelativeto
CommercialandIndustrial
Industrial
60%
Commercial
35.6%
50%
87.2%
40%
Residential
77
30%
20%
37.1%
11
10%
0%
*TheTransportationsectors750customersconstitute lessthan0.1%ofcustomers
Source:EIA
3/28/2012
Page:23
TheU.S.istheLargestElectricityConsumerintheWorld
Shareof Global
Consumption
Consumption ofElectricalEnergyby
Country,2006 Top12*
GWh
UnitedStates
23%
China
15%
Japan
6%
Russia
5%
Germany
3%
Canada
3%
India
3%
France
3%
Brazil
2%
SouthKorea
2%
Australia
1%
Mexico
1%
0
1,000
2,000
3,000
4,000
5,000
USisthelargestconsumer
Top10consumingcountries
plusAustraliaandMexico
consume69%ofworldtotal
69%
*Australiaisranked14worldwide(not11)andMexicois17,buttheyareshownhereforreference
Source: EIA
3/28/2012
Page:24
Contents
Financial
Operational
Environmental
Typicalutilitybehavior
Appendix
3/28/2012
Page:25
NewChallengesareEmergingforUtilities
Italics:newchallenges
Traditional
Tension
Financial
Providingaffordable
electricity
Expectationformore
efficientoperation
Newenvironmental
costsincreasing
Generationcosts
increasing
IOUshaveaprofit
motivation,Munis and
Coopsdonot
Operational
NewTension
NewTension
Environmental
Likelylegislationoncarboncost
Renewablepowerstandardsand
energyefficiencyrequirements
Growingpenetrationof
distributedgeneration
(especiallyrooftopPV)
Emergenceofelectricvehicles
Reliability
Safety
Increasinglystringent
reliabilitymetrics
Integrating
distributedand
intermittent
generation,EVs,
microgrids
Maintainingpower
gridsecurity
SomeMunis alsoare
responsibleforPolice&
Fireservices
Page:26
Financial:FirstHowDoUtilitiesEarnProfits?
Munis
Munis andCoopsareownedbytheircustomers,sotheyarenotprofitoriented
Generation
companies
Generation companiesearnprofitsthroughsellingelectricity
Retail
companies
Retailcompanies(whichoperateinderegulatedmarkets)earnprofitsthrough
buyingandresellingelectricity
IOUs
However,(T&D)IOUsdoNOTearnprofitsontheelectricitytheysell
Yes,they doreceiverevenuesfortheelectricitythroughtheratesthat
consumerspay
Buttheregulatorssetratessotheycoverutilitycoststopurchaseand
deliverthatenergy
Theratesalsocovertheirothercosts
Regulatorsgrantthecompaniesafairrateofreturnonthevalueoftheir
assets,suchasthedistributionlines,transformers,meters,etc.Thisreturn,
too,isreflectedintheratesthatutilitycustomerspay.
Coops
3/28/2012
Page:27
Financial:ManyRegulatorsSetIOURevenuesBasedon
CostofService
CostofServiceCalculation
Roles
RR=O+T+D+r*(RB)
Integrated
utility
Monopolystatusand
fairrateofreturn
Regulator
Obligationtoserve
Guaranteeof
reliableserviceat
reasonablerates
Paymentfor
service
RR=utilitysrevenuerequirement
O=operatingcosts
T=taxes
D=depreciationallowance
r=fairrateofreturn
RB=ratebase
Generallyrepresentsthepropertyandassets
usedtoprovideutilityservice
Maybebasedonfairvalue,prudent
investment,reproductioncost,originalcost
IOUsmakeprofitsbasedontherateofreturn
Customer
(r)andtheratebase(RB),sothereisan
incentiveforIOUstoincreasetheratebase.
Theydontmakemoneyonthecommodity.
Theyjustrecovertheircostsforit.
*ROErulesdifferbystate.Canbebasedontreasuries/borrowingcosts,peergroupROEs
3/28/2012
Page:28
Financial:WhatUtilitiesShowonYourBill(PG&EExample)
Backpageofyourbill(thefineprint)
TheseperkWhratesincludeamountsfor
costrecoveryandtherateofreturn
Asyoucansee,therateincludesmanyelements(describedon
Source: pge.com
3/28/2012
thebackpageofyourbill)
GenerationandDistributionmakeup81%ofthisbill
Generationincludesfuelandpurchasedpower
Bothalsoincludeconstruction,maintenanceand
financingcosts
Page:29
Financial:ThereareSeveralApproachestoBillingfor
Usage
Description
Consumption
Tiers
PG&E billexcerpt
Multiple ratesbasedonconsumption
Baseline:basedonaveragemonthlyusagefor
agivencustomertype
Higherrateschargeforconsumptionabove
thebaselinequantityallocated
Differentrateschargedforelectricityusedatdifferenttimesduringtheday:higherrates
arechargedduringtimesofgreaterdemand
Allowstheutilitytobettermatchrevenueswiththeirenergyprocurementcostsand
encouragesconsumerstouselessduringpeakdemandtimes
Utilitiesprojectenergydemandforthefollowingdayand,ifdemandisexpectedtobe
veryhighasonhotsummerdays,designatethefollowingdayasacriticalpeakday
Timing
Timeofuse
(TOU)
CriticalPeak
Pricing(CPP)
Realtime
Pricing(RTP)
UtilitieschargehigherratesonCPPdaysandlowerratesonnonCPP
WithinCPPdays,theremaybemorethanonerateinTOUpricing
Ratesaresetrealtime,sotheyaremore dynamicthanTOU
Basedonshortertimeintervals,typicallyminutes,notblocksofhours
Notyetwidelyadopted requiresfrequentmeterreadsandeitherconsumeraccess
topricesignalsordirectutilitycontrolofcustomerloads
Demand
response(DR)
mechanisms
Thepurposeis
toreduceand
shiftenergy
demandduring
peaktimes
Source: pge.com
3/28/2012
Page:30
Financial/Environmental:DemandResponseisEmerging
Stateswithestablished DemandResponsePlans(asofSept09)
InCA,betweenthe3IOUs,
thereare26DRprograms,
butonly3(1each)gearedto
residentialcustomers
11states*haveestablished
DemandResponseprogramsor
plans
*IncludesHawaii(notshownonthemap)
Source:FERCSeptember2009;CaliforniaFlexYourPower
3/28/2012
Page:31
Financial/Environmental:DecouplingProfitsfromEnergy
SalestoEncourageEfficiency
Decouplingseparatesautilitysrevenuesfromitsenergyquantitysalestonotdiscourageenergyefficiency
Rates(perkWh)fortheutilityareadjustedupifenergysalesquantitygoesdown(ordowniftheygoup)
Revenue_old =Rate_old *Quantity_old =Rate_new *Quantity_new =Revenue_new
Asoftheendof2008,6states
hadadoptedelectricdecoupling
Expectationisforincreased
decoupling;9stateswere
pending
Source: National Resource Defence Council
3/28/2012
Page:32
Environmentaltargets:EnergyEfficiencyTargets
Summary
TheprimarypurposeofEEisto
reduceoveralldemandand
secondarilytoreducepeakdemand
22states haveEEtargets
Targetlevel,rampup,elements(e.g.,
demand,peakdemand)differby
state
Typicalprograms:
Rebatesforenergyefficient
appliancesandlighting
Loansforenergyefficient
building
Incentivesandpenaltiesalsodiffer
bystate.Forexample:
COandMIhaveincentivesto
exceedtargetsbut no
penaltiesfornoncompliance
InCT,providersthatfailto
meetefficiencyrequirements
mustpayaperkWhchargeto
thePUC
StateswithEEtargets(2009)
Source:PewCenter
3/28/2012
Page:33
Environmentaltargets:RenewablePortfolioStandards
Summary
Arenewableportfoliostandard(RPS)
isastatepolicythatrequires
electricityproviderstoobtaina
minimumpercentageoftheirpower
fromrenewableenergyresourcesby
acertaindate
24statesandDChaveRPSpoliciesin
placeand5othershavenonbinding
renewableportfoliogoals(RPG)
Standardscandifferbytype/sizeof
utilityinastate
Incentivesandenforcementare
managedbyindividualstates
RelativetotheUSaverageof3%of
powerfromRPS,thesetargets
representasignificantincrease
StateswithRPSorRPG(2009)
OR
25%by2025(largeutilities)
5%10%by2025(smallerutilities)
NY:24%by2013
CA:33%by2020*
NC
12.5%by2021(IOUs)
10%by2018(coops&munis)
*From~13%in2008
Source:USDepartmentofEnergy EnergyEfficiencyandRenewableEnergy,DSIREandNREL;CACPUC
3/28/2012
Page:34
Operational:ReliabilityhasaMajorImpactonBusinesses
Averageannualcostofinterruptionsbybusinesstype*
Dollars
Costsduetointerruptionsvarywidelyby
businesstype
80,000
60,000
40,000
20,000
0
Digital
Economy
Continuous
ProcessMnfr
Fabrication
&Essential
Services
Averagecostperbusinessbyinterruption duration
Intotal(notshown)electricalinterruptions
costUSbusinessesmorethan$100B
annually**
Evenmomentaryinterruptionscanbecostly
Averageof$1477perbusinessfor1
secondinterruptions
Forcontinuousmanufacturing,
average1secondinterruptioncostis
muchhigher:$12.6konaverage(not
shown)
Dollars
10,000
8,000
6,000
4,000
2,000
0
1second
3minutes
1hour
*DigitalEconomyincludescompaniesthatrelyheavilyondatastorage,retrievalandprocessing(e.g.,telecom,financialservices,researchanddevelopment);ContinuousProcess
Manufacturingincludescompaniesthatcontinuousfeedrawmaterials,oftenathightemperatures;FabricationandEssentialServicesincludesothermanufacturingaswellas
utilitiesandtransportation
**ConservativeestimatebasedonCEIDScalculationof$104B$164Bin2001.Losscategoriesinclude:production,labor,materials,equipmentdamage,backup,overhead,restart,
other
Source:CEIDS(Cost_of_Power_Disturbances_to_Industrial_and_Digital_Technology_Companies.pdf)
3/28/2012
Page:35
Operational:UtilitiesHaveReliabilityMetricsand
Incentives/PenaltiesforMissingThem
Metrics*
Example(SouthernCAEdison**)
Duration
based
SAIDI
SystemAverageInterruptionDurationIndex
Averagetotaloutagetime(inminutes)overayearfor
eachcustomerserved
CAIDI
CustomerAverageInterruptionDurationIndex
Averageoutagetime(inminutes)
Benchmark:56minutes
Increment:+/ 1minute
Incentive:+/$2M(upto$18M)
Frequency
based
SAIFI
SystemAverageInterruptionFrequencyIndex
Averagenumberofinterruptionsforeachcustomer
served
Benchmark:1.07/yr
MAIFI
MomentaryAverageInterruptionFrequencyIndex
Averagenumberofmomentaryinterruptionsforeach
customerserved
Definitionofmomentarydiffersbyutility(typically
under5minutes)
Increment:+/0.01
Incentive:+/$1M(upto$18M)
Benchmark:1.26
Increment:+/0.01
Incentive:+/$0.2M (upto$3.6M)
Threshold:5minutes
Theseincentivesareanalternative
proxyforthevalueofreliability
*Metricsexcludeplannedoutages.Metricsalsohaveadurationthreshold(typically5minutes),sointerruptionsshorterthanthethreshold
arenotcountedinSAIDI,CAIDIorSAIFI.
**Targetsestablishedin2004
3/28/2012
Page:36
Contents
3/28/2012
Factorsthatmotivateelectricalutilities
Appendix
Page:37
ThereareManyBenefitstoSmartGridSolutions
Example Benefits of Smart Grid Solutions
Reliability
Cost
Environment
Customer
Fewer outages
Shorter duration of outages
Better power quality
More efficient operations and maintenance
Energy/Grid efficiency
Energy conservation
Reduced peak demand
Reduced energy demand
Ability to integrate renewables
Enabling EVs
Consumer empowerment
Improved customer
satisfaction
Lower energy bills
butbenefitscandifferbetweenregulatedandderegulatedmarkets
Page:38
LetsLookat2Examples FirstDemandResponse
DemandResponse(DR)
EnergyEfficiency(EE)
DRprogramsaredesignedto
Shiftloadsfrompeaktooff
peaktimes
Reduceoverallenergydemand
DRprogramsuseenergyratesthat
aremoreexpensiveduringtimesof
higherdemand
Timeofuse(TOU)billing
Criticalpeakpricing(CPP)
Realtimepricing(RTP)
Theactionatthecustomercanbe
takenbythecustomerorbythe
utilityusingdirectloadcontrol
3/28/2012
Page:39
DemandResponse GreaterBenefitsinRegulated
Markets
Regulated
market
Utility
Generation
Peakload
reduction
Deregulated
market
Transmission
Distribution
Deferreddistribution
capacityexpansion
CantargetDRat
specificcircuits
Utility
Peakload
reduction
Customer
Potentiallylower
energybill
Retail
Potentiallylower
energybill
NodistributionbenefitsbecauseUtilityowns
thewiresbutRetailownstheDRprogram
andcustomerinterface,sotheUtilitydoesnt
havefullcontrol
3/28/2012
Page:40
NowLetsLookatEnergyEfficiency
DemandResponse(DR)
EnergyEfficiency(EE)
DRprogramsaredesignedto
Shiftloadsfrompeaktooff
peaktimes
Reduceoverallenergydemand
DRprogramsuseenergyratesthat
aremoreexpensiveduringtimesof
higherdemand
Timeofuse(TOU)billing
Criticalpeakpricing(CPP)
Realtimepricing(RTP)
Theactionatthecustomercanbe
takenbythecustomerorbythe
utilityusingdirectloadcontrol
EE programsaredesignedto
Reduce overallenergydemand
Andindoingso,reduce peak
load
EEprogramsincentivizebehaviorby
usingrebatesforefficient
appliancesorlightingaswellas
loansforenergyefficient
construction
Programsarefundedthrough
surchargesoncustomers(included
inelectricityrates)
3/28/2012
Page:41
EnergyEfficiency GreaterBenefitsinRegulated
Markets
Regulated
market
(with
decoupling)
Utility
Generation
Transmission
Distribution
Deferred
generation
Deregulated
market
Customer
Customerreduces
usage
Utilitymakessame
profit
Utility
Retail
Challengingtoimplement:
Retailerscompetewithrates.Iftheysellless
energy,theymakelessmoney.
3/28/2012
Page:42
Appendix
3/28/2012
Recommendedreading
Electricityfundamentals
Utility102startermaterials
Otherexamples
Page:43
RecommendedReading
ElectricPowerSystemBasicsforthe
NonelectricalProfessional
StevenW.Blume
ISBN:9780470185803
January2008,WileyIEEEPress
UnderstandingToday'sElectricityBusiness
Authors:BobShively&JohnFerrare
ISBN0974174416
www.enerdynamics.com
FromEdisontoEnron:TheBusinessofPower
andWhatItMeansfortheFutureofElectricity
Author:RichardMunson
ISBN:9780313361869
ElectricPowerIndustryinNontechnicalLanguage
Author:DeniseWarkentinGlenn
ISBN10:1593700679
ISBN13:9781593700676
3/28/2012
ElectricPowerDistributionReliability
RichardE.Brown
DistributionSystemModelingand
Analysis
WilliamH.Kersting
BusinessEssentialsforUtility
Engineers
RichardE.Brown
Page:44
ElectricityBasics(1/2)
Directcurrent
(DC)
Alternating
current(AC)
Currentflowsinonedirection
Batteriesproducedirectcurrent
Currentamplitudeanddirectionchangeovertime
Theelectricalgridandwiringinourhomesandbusinessesuse
AC.Why?...
Energycanbetransmittedoverlongdistanceswithless
lineloss thanwithDC
ACvoltage canbesteppeduporsteppeddownvia
transformers
DC
AC
3/28/2012
Page:45
ElectricityBasics(2/2)
Singlephase
Threephase
3/28/2012
Singlephaseelectricpowerreferstothedistributionofelectricpowerusingasystem
inwhichallthevoltagesofthesupplyvaryinunison
Usedtosupplyelectricitytoresidentialcustomersandsmallercommercialcustomers
InNorthAmerica,therearegenerally3wiresthatcometoyourhouse,buttheyare
allonthesamephase
Threephaseelectricpowersystemshavethreealternatingcurrents(ofthesame
frequency)whichreachtheirpeakvaluesatdifferenttimes
Deltabetweenpeaksisthephasedifference
Usedtosupplyelectricitytoindustrialandsomecommercialcustomers
Combinationofphaseshastheeffectsofgivingconstantpowertransferovereach
cycleofthecurrent
Page:46
Technicallossesintheelectricalgrid
BASED ONINDIANA
URC EXAMPLE**
Substation
transformers:0.7%
%loss
Transmissionlines:
0.5%
Coal:~65%
GasCCGT:50%
Nuclear:2%
Distribution
transformers:
2.1%
Primary
network:1.0%
Substation
transformers:0.7%*
Customer
connection:0.3%
Meter:0.3%
Total:~9%(forNuclear)to~70%(forCoal)
*Assumedequaltodistributionsubstationtransformerloss
**T&DlossesarefromtheIndianaURC
Source: IndianaURC2007;DOIUSBR;NEI
3/28/2012
Page:47
PowerSystemDevices(1/4)
Definition
3/28/2012
Generation/
powerplant
Generateselectricityfromafuelsource(potentialenergy)intoelectrical
energy
Fueltypesinclude:biomass,coal,naturalgas,geothermal,solar,wind
BuilttoanameplatecapacityratedinMW(MegaWatts)
Trans
missionline
Transportselectricityatveryhighvoltages(usually66765kV)overlong
distances
IntheUS,transmissionisprimarilyalternatingcurrent(A/C),direct
current(DC)isusedinsomeareas
Substation
Thelocationwhereelectricityisconvertedfromonevoltagetoanother
vialargetransformers
Stepdownsubstationsreducethevoltage(usedtosendelectricityfrom
transmissionlinestodistributionlines),stepupsubstationsincreasesthe
voltage
Highvoltage
transformers
Thedevicesthatconvertortransformtheelectricityfromonevoltage
toanother
Ratedink/MVA(VoltAmperes),whichistheoreticallythesameaswatts
Page:48
Definition
3/28/2012
Loadtap
changer
Locatedinsidethesubstations,LTCsaremechanicaldevicesthatcontrol
andchangethevoltagebeingsentdowntheline,moregranularlythan
thetransformer
Generally,lifetimesofloadtapchangersareafunctionofthenumberof
tapsoractionstaken
Someutilitieswillusevoltageregulatorsorlargecapacitorbanksto
performthesamefunction
Voltage
regulators
Devicethatsensesvoltageoninputsideandraisesorlowersthevoltage
onoutputsidetomaintainapresetvoltagelevelplusorminusa
bandwidth
Generallyinsubstations,mayalsobealongfeeders
Circuit
breaker
Anautomaticallyoperatedswitchthatopensthecircuit(ie stopspower
flow)whenitdetectsanoverloadorshortcircuitinordertoprotectthe
circuit
Lightning
arrestor
Locatedinsubstations,andthroughtheelectricgrid,lightningarrestors
protectthepowersystemfromtheeffectsoflightning,whichcancause
surgesonpowerlines
Aka surgearrestor
Page:49
Definition
3/28/2012
Sectional
izer
Protectiondevicethatopensacircuit,butdoesnothavetheabilityto
interruptalinewithcurrentonit
Requiresdevicesonsourcesidetointerruptcurrentandvoltagesoitcan
open
Replacesfuseswiththeadvantagethatitcanbeusedmultipletimes
withoutneedingtoreplacepieces(thefusedelements)
Fuses
Devicelocatedintheelectricgrid,onasinglephase,thatprotectsthe
gridagainstexcessivecurrent,literallymelting(thus,fuse)toopenthe
circuitandinterruptpowerflow
Recloser
Protectiondevicesthatopensacircuit,butcanbeprogrammedtoclosea
presetnumberoftimestoallowalinetobereenergizedifthefaultis
momentary
Hastheabilitytointerruptfaultcurrent
Loadbreak
switches
Usedprimarytoisolatefaultsandtransferloadbetweenconnecting
feedersorsubstations
Canbeopenedorclosedtotransfersectionsofloadfromonefeederto
another
Page:50
Definition
3/28/2012
Capacitor
banks
Devicesthatoffsetreactivepoweronasystem,creatingthepotentialto
reducelossesduetoreactivepower
RatedinkVAR (kiloVoltAmpereReactive)
Faulted
circuit
indicators
Providesvisualoraudioindicationoffaultcurrenttoidentifywherea
faulthasoccurred
Aka FaultCurrentIndicators
Lowvoltage
transformers
Convertshigherdistributionvoltages(primaryside)tolowervoltagesfor
useinpremises(secondaryside),usually120/240voltsinUS
Mostubiquitousgriddeviceafterthemeter
Meter
Measureselectricityconsumedatthepremise
Moreadvancedmetersalsocanmeasureotherelements voltage,
reactivepower,etc
Page:51
Generation:DuetoThisVariability,APortfolioof
GenerationTypesisNeededtoEfficientlyandEffectively
MeetDemand Generationplantcharacteristics
Typicalplanttypes
Loadtype
Peak
Lowfixedcosts
Highvariablecosts
Quickstartcapability
Combustionturbines
Pumpedstoragehydro
Cycling
Lowervariablecostsrelativetopeak
Oilandgassteamplants
capacity
Lowerfixedcostsrelativetobase
capacity
Loadfollowingcapability(i.e.,ability
tomovequicklybetweenvarying
levelsofdemand)
Highfixedcosts
Lowvariablecosts
Reliability
Coal
Nuclear
Hydroplants
Combinedcycles
Traditionally,utilitieshavelookedatdemandasuncontrollable,sotheyveneededvarious
typesofsupplytomeetthedemand.
Withrenewableenergysupplieslikesolar,utilitiesfaceuncontrolledsupply,whichrequires
activeloads(e.g.electricvehiclesanddemandresponse)tobalance.
Base
Page:52
Transmission:RoleofRTOsandISOs
RTOs(RegionalTransmissionOrganizations)
Independent,federallyregulatedentitiesestablishedtocoordinateregionaltransmissionin
anondiscriminatorymannerandensurethesafetyandreliabilityoftheelectricsystem
Playaroleincoordinatingwholesaletrading
Usuallyoperateacrossstateborders
ISOs(IndependentSystem
Operators)playasimilar
roletothatofRTOsbut
eachtypicallyoperates
withinagivenstate
Source: FERC
3/28/2012
Page:53
Distribution:NetworkTopology
Feeder
(3phase)
750kv
33kv
Transformer
Commercial
&Industrial
customer
Substation
33kv 12kv
Transformer
Transformer
R
Feeder
(3phase)
Reclosers
Sectionalizer
Lateral(singlephase)
Feeders
(3phase)
Large
Industrial
customer
Transformer
Allsinglephase
Home
Home
Home
Home
Typically5homes
servedbyeachof
thesetransformers
3/28/2012
Page:54
Home
Distribution:SubstationMap
HVlinein
(33kV)
HVlinein
(33kV)
EXAMPLE:
SIMPLELAYOUT
Disconnect
switch
Highvoltage
circuitbreaker
Normally
open
Power
transformer
withvoltage
regulatingloadtap
changeratoutput
Breaker
Bus
Bus
Normally
open
Feeder
breakers
Feeders(
11kV)
3/28/2012
Feeders(
11kV)
Page:55
Financial:HowUtilitiesRecoverCosts(PG&EExample)
Cost of Service
Component
Rate
component
Rate-setting structure
FERC/CA
ISO costs
FERC/CA ISO
costs
FERC jurisdictional transmission revenue requirements and CA ISO pass through

costs
PGC charge
DWR
contract
costs*
Public Goods
Charge
Recovery of costs related to Energy Efficiency and other public good components
(e.g., appliance and CFL rebates, customer care programs)
DWR Revenue
Requirement
During the 2000-2001 CA Energy Crisis, the Department of Water Resources

procured long term power for the utilities, which is recovered in rates
Energy Related
Recovery
Account (ERRA)
Filed twice a year, one forecast and one historical for fuel & purchased power costs
Has a balancing account mechanism to true-up for fluctuations between forecast
and actual costs
If costs are >5% of forecast, automatically triggers the process for a rate increase
Fuel &
Purchased
Power
Return, interest,
and taxes
Other taxes
Depreciation &
Amortization
Operating &
Maintenance
costs
General Rate
Case (GRC)
Three year cycle, de-coupled from energy sales

Covers all Operations & Maintenance and other opex
Cost reductions/overruns within 3 year cycle flow to earnings
Cost of Capital
(COC)
Filed annually
Covers the allowed ROE and capital structure
Special purpose
balancing
accounts
Created to recover costs of special one-time projects (e.g., AMI)

Generally have a fixed cap for expenditures, but under spent
portions are not recovered
Utilityaccountingis
complex(!)
Ratesareadjustedover
timetoprovidecost
recovery andensure
thatcostimprovements
flowbacktoratepayers
Investmentcost
overrunsareborneby
theutility
Thecombinationoflow
rewardforriskleadsto
riskaversion
Source: PG&E GRC filings
Page:56
Financial:MeasurementsusedforBilling
Applicablefor
Measurement
Usage
Demandcharge
Powerfactor
(orVARs)
Description
Basedonenergyconsumed
Measuredinwatthours(Wh):a40wattlightbulboperatingfor2
hourswillconsume80Wh
Usuallyappearsasthousands ofwatthours(kWh)
Basedonthemaximumkilowatts neededatanyinstantoverthe
courseofthebillingperiod
Measuredinwatts andexpressedatkilowatts(kW)
Theutilityneedstohaveenoughcapacityavailabletomeet
demand, sotheylevyanadditionalcharge
Powerfactorisaratio betweentherealpoweravailabletothe
customer(W)andtheapparentpowerthattheutilityprovides
(volts*ampsorVA)
Inaperfectworld,theW=VA
Theyarenotthesameintherealworldbecausesomedevices
(e.g.,motors)createasortofresistance(calledreactance)
Toovercomethisreactance,theutilityneedstoprovidemoreVA
foreachW.Thedifferenceiscalledvolts ampsreactive(VAr)
Topay forthisextragenerationcapacity,utilitieschargebasedon
thepowerfactor(W/VA)ortheVAr.
ResidentialandSmall LargeCommercialand
Commercial
Industrial
Yes
Yes
No
Yes
No
Yes
ExamplePF penalty
Reactivepower
Realpower
Source: Detroit Edison Tariff Structure
3/28/2012
Page:57
ExampleElectricityRates:NCIOUExample(Duke
Energy)
Flatratefordistribution
Energycharge
Fortransmission
Additionaldistributionfee
Forfuelpurchases
Generationcharge
Forenvironmental
compliance,taxesand
homelandsecurity
Additionalgeneration
charges
Source: Duke Energy
3/28/2012
Page:58
HopeourResearchwasHelpful
Ifyouhaveanyquestions
Pleaseemailorcallme:
JohnChowdhury
Phone:2142136226
John.chowdhury@smarterutility.com
http://www.smarterutility.com.
Upload,embed,andshareaway!
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Page:59
UtilityoftheFutureseries
US Utility Industry and

Regulatory Landscape
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Electric Utility Primer

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UtilityoftheFutureseries2012

US Utility Industry and

Utility Holding Company

Wires / T&D Utility

Utility Holding Company

2009 Munis intheUS(65%)

Alternating current (AC)

Source: National Resource Defence Council

FERC jurisdictional transmission revenue requirements and CA ISO pass through

During the 2000-2001 CA Energy Crisis, the Department of Water Resources

Three year cycle, de-coupled from energy sales

Created to recover costs of special one-time projects (e.g., AMI)

Source: PG&E GRC filings

Source: Detroit Edison Tariff Structure

Source: Duke Energy

US Utility Industry and

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