[August 19, 2016 / No. 1762]

Perspectives on Gas, Customers, NW Energy Infrastructures

In these warm late-summer days well-suited for reflective reading, following are summaries of three reports/events I found worthwhile for their longer perspectives on relevant energy topics.

I hope you do, too.

Natural Gas: A New World Order

We're all familiar with the rise of fracking and subsequent decline in U.S. natural gas prices since the late 2000s.

In a July 28 Northwest Gas Association webinar, Navigant's Gordon Pickering reminded us of those salient facts (e.g., Henry Hub prices down 79 percent since 2008). But he also provided a larger global context.

The U.S. "is an emerging energy superpower," said Pickering, who heads Navigant's North American natural gas and LNG team.

In 2015, the U.S. led the world in oil and gas production, and in 2016 is anticipated to be a net exporter of natural gas for the first such time since 1957. Expanding pipeline distribution of gas to Canada and Mexico is a big factor. Meanwhile, Navigant foresees five U.S. LNG export projects on line by 2020, in Louisiana, Texas and Maryland (proposed West Coast ventures are conspicuously absent from this near-term forecast).

Navigant foresees a gradual global shift away from fossil fuels, but believes this transition will be slow, and gas demand will expand globally. Asia, in particular, looks to be a growth market, with gas demand projected to nearly double from 2016 to 2030, at that point roughly equaling North America at 120 Bcf per day.

Pickering noted projections for an oversupplied global LNG market starting next year, but he suggested it could be sopped up by a 3-percent annual increase in Asian compound annual growth from 2016-2020.

"Our thinking is it will be a decade or more before gas shale [outside of North America] comes into play, therefore opening the door for LNG to meet market requirements over this period of time," he said.

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On the domestic front, Pickering listed several beneficial consequences from the shale boom: a 73-percent drop in average weighted wholesale electricity prices since 2008, saving $204.3 billion in 2015 alone; lower CO2 and other emissions, with gas power-generation rising and coal-fired power declining: contributions to revived American manufacturing; and increased energy security.

Pickering acknowledged uncertainties for gas, including EPA's Clean Power Plan and "less than universal agreement as to the important role of natural gas in positively addressing climate change and supporting renewables and as a 'cleaner' option to coal."

He omitted a potentially significant challenge for gas--methane emissions--and didn't really address current trends of falling costs and manageable grid-integration for renewables.

Nonetheless, Pickering is on point in spotlighting the major role of natural gas in energy. domestically and internationally. It may still be a bridge fuel, but the bridge looks increasingly long.

Households and the Utility Future

"Residential Consumers and the Electric Utility of the Future," written by Janee Briesemeister with help from Barbara Alexander for the American Public Power Association, raises concerns about potential impacts on residential customers of major changes swirling about the electric-utility industry.

Those shifts include expanded distributed energy resources, new rate designs, distribution-utility-as-platform for third-party providers, and grid modernization.

Based on their own knowledge, interviews with consumer advocates and public-power officials, and other research, the authors worry about rate increases associated with utility-future plans and costs outweighing benefits.

"For [consumer] advocates, the Utility of the Future discussion has been focused on complete transformation with little or no discussion about a least cost path to that goal, much less whether the contemplated transformation will provide the promised benefits to consumers," they write.

They compare "this rush to pursue fundamental policy changes" to the push for electric-industry restructuring, which in their view has produced "controversial and widely criticized" outcomes.

Maintaining affordable electric service is a main concern. Grid modernization is costly and offers uncertain benefits, the report said, with risks including obsolescence, stranded costs and helping only a minority of customers (e.g. solar payments and electric-vehicle charging).

Providing basic electric service at reasonable rates is another imperative, the authors write, especially for customers unable or unwilling to install distributed resources (although community solar is considered a viable option). Utility assistance programs for lower-income customers will become even more necessary, they write.

For rate design and cost allocation, the authors emphasize equity in allocating costs among customer classes, which they think is strained with the likes of net metering paying full retail rates (a value-of-solar approach is thought fairer).

The report takes aim at high fixed charges and demand charges, quoting an advocate describing those as a "blunt instrument" that can harm many customers. Rising fixed charges diverge from rate-design principles of customer-specific cost-causation, while demand charges for residential customers are viewed by many advocates as "fraught with problems, adding complexity that most residential customers will have difficulty understanding, much less controlling."

They also caution against residential time-varying rates as basic or mandatory, as that "ignores the significant number of customers who cannot alter their usage patterns and may incur unaffordable bills for an essential service."

The report suggests targeted rate designs for different subsets of customers, reflecting cost of service.

The authors also raise concerns about consumer protection in the "wild west" marketplace that could emerge from the push for electric-customer choice and innovations, although this protection role may not be appropriate for public power. Privacy/security of customer information is another "hot topic," they write.

The report concludes with a section recommending early, often and open utility communications and engagement with customers on utility-future matters.

An appendix summarizes "utility of the future" proceedings in New York, Minnesota, Michigan, California and Massachusetts.

While I think this report under-emphasized benefits from a smarter, modernized, more distributed and cleaner electric system--including for residential customers--it usefully highlights cautionary notes in electric-sector transformation.

This transformation affects everyone who uses electricity, and everyone's interests deserve consideration throughout the process.

Integrating the Northwest Energy Infrastructure

A far-reaching evolution is outlined in "Rewiring the Northwest's Energy Infrastructure: An Integrated Vision and New Investment Strategy," written by Rhys Roth, director of the Center for Sustainable Infrastructure at The Evergreen State College.

The report's framing question is: "How can the Northwest build one of the world's most sustainable, resilient, and affordable energy systems by 2040?"

The short answer includes technology, a more unified approach to energy, a revised utility compact and organizational-leadership rearrangements.

Roth--who discussed this report at the July 8 Pacific Northwest Utilities Conference Committee board of directors meeting--sketches factors behind transformative energy change. Those include technologies (solar, batteries, smart home energy apps and more); "astonishing new opportunities for customer participation and choice" in the energy marketplace; aging infrastructure and workforce; climate policies; and an imperative for system resilience.

"A sustainable energy infrastructure will be much more complex than today's, but it appears that a flexible, smart, super-efficient, clean system will likely be technically manageable, no more expensive, more resilient and less risky that maintaining and rebuilding today's system," the report said.

Technology plays a central role in this envisioned future, especially distributed energy resources such as solar, high-efficient homes and buildings (including "deep" efficiencies), individual energy tools (e.g. Nest thermostats) and microgrids.

From the larger grid perspective come the likes of energy storage; demand response; transmission-system capabilities such as synchrophasors and conservation voltage regulation to enhance flexibility and lower costs; and large-scale hydro, solar, wind and other resources.

Another essential theme of this future path is what Roth calls "integrated, silo-bridging solutions" for energy. In this category he puts electric vehicles; more-efficient and less-fossil-fueled heating and cooling; and solid waste, water and wastewater systems that use energy more efficiently, produce clean energy and collaborate to save money and increase value.

Key features of the envisioned 2040 system include a greater electricity role, and at least 90 percent renewable (including hydro); at least 80 percent heating/cooling/hot water from low-carbon systems; a 50-percent improvement in efficient electric use; a multidirectional grid with energy storage and management balancing supply and demand; and a majority of vehicle travel electrified.

Institutionally, the report foresees a continuing primary role for electric utilities, albeit with a potential "new utility compact" including business-model changes such as pay-for-performance to align utility financial incentives with policy goals.

Roth thinks state governments should have a "chief convener role, bringing all the key stakeholders together to help bring our energy and utility policy structures into the new era of energy technology transformation."

He also suggests broadening the mission of the Northwest Power and Conservation Council "to apply its advanced analytic tools to plan for the energy system as a whole across, electricity, transportation and heat."

The report argues this system vision is technically feasible and affordable, the latter reflecting the perspectives of energy users, life-cycle costs, declining costs for clean-energy technologies, and prospects for whole-system savings.

One could consider this report a utopian academic exercise, lacking a specific roadmap for this future energy system.

But I think this report has value as a thought paper. It was informed by numerous prominent regional electric-industry officials who were interviewed for it. It builds on many existing technologies, policies, trends and institutions.

And, the call for thinking and working across energy boundaries resonates, despite many inherent challenges. -Mark Ohrenschall

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