Closer Look At EPA Proposed Rule 111D: Utility Perspective

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1 Closer Look At EPA Proposed Rule 111D: Utility Perspective The Council of State Governments Annual Conference August 11, 2014 Lopa Parikh Director of Federal Regulatory Affairs Edison Electric Institute

2 Edison Electric Institute The Edison Electric Institute (EEI) is the association that represents all U.S. investor-owned electric companies. Our members provide electricity for 220 million Americans, operate in all 50 states and the District of Columbia, and directly employ more than 500,000 workers. With more than $85 billion in annual capital expenditures, the electric power industry is responsible for millions of additional jobs. Reliable, affordable, and sustainable electricity powers the economy and enhances the lives of all Americans. EEI has 70 international electric companies as Affiliate Members, and 250 industry suppliers and related organizations as Associate Members. Organized in 1933, EEI provides public policy leadership, strategic business intelligence, and essential conferences and forums.

3 Building Blocks BSER Building Blocks form the basis for each state s emission performance goal: heat rate improvements at coal-based affected EGUs; increased dispatch of existing natural gas combined cycle units; increased deployment of some zero-emitting generating resources and preservation of some existing nuclear units; and end-use energy efficiency improvements. Impacts vary by region

4 Clean Power Plan: Critical Questions and Issues EPA used systems approach to determine goals but examined each building block in isolation Not clear if system could achieve all 4 blocks together Some state goals are aggressive Guidelines recognize but do not reward early action Treatment of zero-emitting energy resources inconsistent Questions about EPA s legal authority

5 Potential Impacts Clean Power Plan (CPP) likely to accelerate shift from coal to natural gas for baseload generation EPA indicates that between GW of existing coalfired power plants will retire by 2030 as result of rule In addition to GW of expected coal plant retirements, primarily due to MATS Natural gas and renewables expected to gain market share Energy efficiency investments also likely play important role Impacts vary significantly across states

6 Impacts on Member Companies Vary Types of plants Fuels used State environmental regulations Economic regulators and cost recovery for new plants Interstate participation in RTOs/ ISOs Impacts on customers

7 Model for EEI Engagement Identify priority issues and develop consensus-based comments Aimed at improving compliance flexibility, minimizing cost impacts to our customers, and protecting reliability CEOs heavily, routinely engaged Reach out to key officials on priority issues and proposed solutions EEI s efforts supported by outreach from member companies Push to get state regulators and other officials to weigh in Identify all opportunities to ensure key issues addressed appropriately Work closely with wide range of allies By coming together, industry can effectuate significant changes in the final rule, saving companies billions in compliance costs

8 Goal Is To Maintain Reliability Reliability = system s ability to deliver electricity to customers and to recover from any disruptions that may occur Electricity cannot be stored so supply and demand must be balanced by the system operator

9 Different Market Structures Vertically Integrated Utility owns generation, transmission and distribution Plans for peak load Regulated rate of return Competitive Wholesale Markets Some utilities divested generation Operational control of transmission facilities turned over to RTO/ISO Regulated rate of return for transmission and distribution Generation costs recovered from the market

10 Competitive Wholesale Markets Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) created Manage the reliability of the transmission grid for a state/region Operate wholesale markets (capacity, energy, ancillary svcs) Generators bid power into wholesale markets Least cost generators get dispatched first All generators dispatched get market clearing price or LMP bid of last generator dispatched FERC has oversight of these markets

11 Different Market Structures

12 How is Energy Priced Wholesale Market - LMP

13 Demand Curve Daily demand can be broken into three distinct phases: base load plants run continuously and provide daily minimum power demand; low cost to maintain and operate Intermediate or cycling load plants operate during shoulder hours; flexible, moderate cost Peak load - plants operate during peak demand periods; highly responsive to changes in demand

14 Evolving Generation Mix Source: DOE Energy Information Administration

15 Drivers of Industry Investment

16 Generation Fuel Mix Varies By Region

17 Generation Capacity Additions

18 Where Does the Gas Come From? Where Does it Go? Source: DOE, Energy Information Administration

19 Challenges Integrating Natural Gas and Infrastructure Challenges Renewables Additional pipeline capacity needed to accommodate increased demand for natural gas in some locations Operational Challenges Electric/gas coordination Increased renewables mean increased need for natural gas to provide quick start reserves and load following to respond to variability and deviations from forecasts Cost Recovery Challenges Increased renewables impact on market prices Flexible pipeline service contract options

20 Current Activity ISO/RTO Stakeholder Groups and Studies e.g. New England States Committee on Electricity (NESCOE) Gas-Electric Focus Group Final Report issued March 31, 2104 ISO NE Electric Gas Operations Committee NY ISO Electric - Gas Coordination WG MISO Electric Natural Gas Coordination Task Force PJM - Gas-Electric Senior Task Force SPP Gas Electric Coordination Task Force

21 Current Activity Regional Coordination e.g. EIPC - Eastern Interconnection Planning Collaborative EISPC Eastern Interconnection States Planning Council Western Governors Task Force/ Western Interstate Energy Board Phase I Report issued July 30, 2014 Desert Southwest Pipeline Stakeholders Northwest Mutual Assistance Agreement PNUCC - Pacific Northwest Utilities Conference Committee Columbia Grid

22 Current Activity FERC e.g. Communication of Operational Information Between Natural Gas Pipelines and Electric Transmission Operators (FERC Order No. 787) Coordinating of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities (Docket No. Rm14-2) Winter Operations and Market Performance in Regional Transmission Organizations and Independent System Operators Technical Conference held April 1, 2014( Docket No. AD14-8) Frequency Regulation Compensation in Organized Wholesale Power Markets (Order No. 755) FERC will hold staff workshops this fall to examine regional price formation issues. (Docket No. Ad14-14 )

23 PacifiCorp/CAISO Energy Imbalance Market FERC conditionally approved (June 2014) PacifiCorp s and CAISO s request to establish an Energy Imbalance Market (EIM) in order to more economically and efficiently dispatch variable energy resources. Annual benefits estimated to be up to $129 million. More efficient dispatch, 5 min balancing, increased pool of resources for balancing, minimized need for flexible reserves, reduced curtailment of renewable generation Source: PacifiCorp, CAISO

24 Looking Ahead to the State Plans Be aware of challenges Communicate with utilities and state commissions Build on existing regional efforts