Clearing Up / Bearing Down
[November 3, 2017 / No. 1824]
On Change, Industry Basics, and Customer Interests
SUMMARY: Several themes emerged at the CUB Policy Conference on Oct. 13, including the accelerating pace of electric-industry change, industry fundamentals with recent overlays, customer interests and increasing interconnectedness.
The regional energy industry is accepting and even embracing accelerated change, striving to provide what customers want in a cost-effective, reliable and environmentally minded manner, in service to public-policy aims, and with increasing collaboration and interconnectedness.
Phew … that's quite an agenda.
To be straight, those were some of my thematic takeaways from the CUB Policy Conference Oct.13 in Portland. While the event was titled "Utility Regulation 2.0: Empowering What's Possible," broader energy issues emerged. The day's dialogue also featured some "Yes, but …" takes on the above themes.
Herewith is a summary.
It has become an article of faith that significant electric change is happening, and at a quickening pace. This view was ratified by the opening panel of top utility leaders, with President/incoming CEO Maria Pope of Portland General Electric, President/CEO Stefan Bird of Pacific Power, President/CEO David Anderson of NW Natural, President/CEO Darrel Anderson of Idaho Power, and Administrator Elliot Mainzer of BPA. They cited such circumstances as decarbonization, coal-plant closures, increasing energy efficiency and renewables, two-way energy flows, smart grid, customer-driven perspectives, and technologies.
"PGE believes things are changing fundamentally," said Pope.
"I certainly agree the pace of change is increasing today," said Bird, also noting the industry has been changing since its inception a century-plus ago.
Mainzer believes this perspective is widely shared. "I am seeing, generally across the Western U.S., a real embracing of change by the leadership of our utilities," which he said is "finding it energizing and exciting and very engaging for our workforce."
He also identified a central challenge of guiding the traditional monopoly utility and its "control everything" mentality more toward a role of enabling service providers. "It's an exciting transition" that needs incentives aligned to support long-term infrastructure spending to enable this evolution.
Industry Fundamentals, Recent Overlays
Even with the rapid changes, some electric fundamentals remain.
Affordable rates are beyond debate, Oregon PUC utility program director Jason Eisdorfer said during a panel discussion on increasing grid flexibility. "Reliability of the system is not a debatable proposition. Those are a couple of goals that can't be undermined to any degree."
In another panel, Franco Albi, PGE integrated resource planning manager, added another basic: safe provision of electricity.
To those essentials are now layered more objectives. Eisdorfer listed carbon reduction, greater market competition and increased customer choices. Albi mentioned security.
By and large, these more-recent objectives appear to be gaining currency within the industry.
Take decarbonization. In response to an audience member questioning global warming and suggesting growing public support for fossil-fueled power, the utility execs veered away from that viewpoint, in various ways.
"Our customers have spoken loudly and clearly that's what they want," said Bird, in reference to decarbonization.
Mainzer noted the hydro system's no-carbon nature, but also its exposure to the effects of climate change, in snowpack and precipitation patterns. Utilities moving to reduce their carbon emissions are "paying for our hedge," he said. "I think it's worth paying for."
Darrel Anderson said Idaho Power is planning early retirement of its co-owned North Valmy coal-fired plant "because of economics. That plant is the highest in our stack from a cost perspective. We believe moving our way out of that happens to help us from a decarbonization perspective." He added, "The reality of that is we're moving in decarbonization regardless of whatever happens to the Clean Power Plan."
NW Natural's David Anderson said a recent internal strategic-planning process reaffirmed the gas utility's commitment to lower carbon emissions. "We decided as a company to continue down the path the company's been supporting a long time, decarbonizing as much as we can. We believe our customers want that." He added that the economics of that path matter, since about one-third to nearly one-half of its customers earn low and moderate incomes. "How do we accomplish that greener future … in a cost-effective way to not price out those individuals?"
Top energy officials are well-cognizant of meeting the evolving needs of their customers.
"We absolutely have to keep our customers first and foremost in mind," said Bird.
"I absolutely believe customer preferences, perspectives are driving change as much as anything else," including technology, said Idaho Power's Anderson.
NW Natural's Anderson made a pitch for his utility's fuel, saying that on the coldest days natural gas supplies 95 percent of energy used in Oregon, with 8 percent of total statewide emissions. He encouraged "a much broader discussion on what's the best way to deliver energy to end-use customers."
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In another panel, Wendy Gerlitz, NW Energy Coalition policy director, suggested consideration of "customer optimization" in integrated resource planning. IRPs typically examine optimizing the utility system, she said; but given increasing energy technologies available to customers, attention should be given to "where are the commonalities and where are the threads" to link utility and customer needs. One example could be incorporating transmission- and distribution-system planning into IRPs. (Mainzer separately suggested breaking down the either/or distinction between the distribution and bulk-grid systems, to help handle the surge of distributed generation and its consequences, such as periodic oversupply.)
Gerlitz also raised an issue of equity, to ensure affordable electricity for all customers. She also noted a potential downside to abundant consumer choice, especially in the low-rate Northwest. "Too much customer choice can lead to rates much higher than when you do not have to make those choices."
One more item in this regard: Idaho Power's Anderson said "technological obsolescence" is an issue for his utility, for example with smart-meter deployments, as technology may evolve faster than the utility's cost-recovery period. "How quickly we might collect on that technology, how we further that, is one of the risks, one of the barriers I see in advancing technology."
PGE's Pope agreed, and said customers expect technology changes faster than utilities are accustomed to providing them. She cited an example she recently heard of new electric-vehicle charging stations in Beaverton "largely inoperable … I think we can do better at meeting customer needs faster … and to meet customers where they are."
Another theme I picked up in the conference dialogue was the notion of growing electric interconnections, an expanding web of mutual influences with customers, markets, energy technologies, regulation and more.
The Western EIM is an obvious example, with six active participants (including operator California ISO) and several more on the way, all pursuing mutual gains in integrating renewables while lowering carbon emissions and costs (total estimated gross benefits to date exceed a quarter-billion dollars).
'Our customers want a cleaner and more efficient grid, and markets are a great way to enable that'
"Our customers want a cleaner and more efficient grid, and markets are a great way to enable that," said Bird, noting an emissions decline of 12 to 15 percent in his utility's thermal fleet "simply as a result of accessing the market."
Speaking of markets and interconnections, Mainzer said he is "really hopeful" for development of a day-ahead capacity flexibility market in California, to provide resources to help manage the Golden State's duck-curve ramps. Northwest hydro is well-suited to participate in such a market, he noted, which would also serve BPA's interest in what he termed "capacity monetization."
During the grid-flexibility panel, Renewable Northwest Executive Director Rachel Shimshak said such an arrangement "would help resolve a lot of issues" and would be "a nice marriage of what we have and what they need."
She earlier said wind power can provide frequency response "if it gets paid for providing that service … Recognizing where the values are and providing compensation will help us get to a more flexible grid."
Interconnection also surfaced in a panel discussion on electric vehicles. Utilities have an obvious vested interest in EVs expanding, but the growth of this market depends largely on other influences. For one, government policy; for example, current federal tax credits and upcoming state rebates such as Oregon will provide for EV purchases.
Local governments also have a role. The City of Portland thinks EVs can help it meet carbon-emission reduction goals, according to Ingrid Fish, policy and research analyst with the city's Bureau of Planning and Sustainability. The city also wants EV charging infrastructure focused in certain places, such as away from downtown, to help reach underserved populations in multifamily housing, she said.
There's also the critical role of the private sector: vehicle manufacturers and dealers, as well as EV charging-infrastructure outfits. And, oh yes, vehicle-buying individuals as well as entities.
In other words, utilities need lots of help in advancing EVs.
Brendan McCarthy, PGE's state environmental policy manager, said his utility envisions hundreds of thousands of EVs eventually in its territory, providing benefits ranging from renewables integration to customer value to ancillary services to better reliability to improved local air quality. He called it "an exciting future" for utilities, but also cautioned it will likely unfold over many years, given the small market penetration of EVs in Oregon (less than 2 percent of total auto sales as of December 2016, according to the website EV Adoption).
"We have a lot of time to get this right," he said.
A number of other concepts were raised at the conference -- including allowing utility returns for power-purchase agreements and multiyear rate cases -- but I'll end with a concluding comment that the electric future will likely involve an emerging new cohort of people.
"The challenges of decarbonization are attracting a lot of great people to our industry," said Mainzer. "In the last year we really struggled with a whole generation of people retiring." Now, "I'm seeing young people lining up, ready to enter the business. It's exciting." [Mark Ohrenschall]
Bearing Down is excerpted from Energy NewsData's Clearing Up publication. If you aren't a current subscriber, see for yourself how NewsData reporters put events in an accurate and meaningful context -- request a sample of Clearing Up.
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