# Presentation: 171577

**ENERGIZING THE NORTHWEST, TODAY AND TOMORROW****September 28-29, 2004 Double Tree Hotel, Jantzen Beach, Portland, Oregon**** **
**Presented by Jon T. Brock and Ethan L. Cohen**

***Responding to Business and Service Delivery Demand***

## About UtiliPoint International

- Origins dating back 71 years
- Offices in 5 U.S. Cities
- Utility Technology Expertise
- Consulting services
- Utility Analyst services
- Market Research
- Publishers of Issue*Alert*

## Insightful Signage: A Host of Meanings

## Quick Snapshot of Today’s Electric Utility Industry

## Drivers in Today’s Market

- Macro
- Terrorism
- Corporate governance
- Tightening capital
- Industry
- Credit tightening
- Regulatory Uncertainty
- Power Quality
- Diversification failures
- Wash trades, Enron
- Environment
- New Technologies
- Global/Local
- Aging Infrastructure
- Fuel costs

**Drivers in Today’s Market**

- Internal
- Downsizing
- Divestitures
- Strategy redefinition
- Fuel Diversification
- Asset Based Trading
- Refocus on Wires
- Outsourcing
- Write-downs
- Rate Increases
- Work Force & Expertise

- Utility

## Rate of Change is Accelerating 

## Capital Intensive

**Big 4 long-distance carriers:  AT&T, Sprint, MCI and  World Com**

**$200,000,000,000**

**$400,000,000,000**

**$600,000,000,000**

**Electricity**

**Airlines**

**$0**

**IOU Electric**

**Domestic Airlines**

**$585 B**

**Long**
** ****Distance**

**Big 4**
**Telecom**

**$360 B**

**Natural**
**Gas**

**IOU Gas**

**$138 B**

**$95 B**

## Dominant Industry Trends

- Everyone is looking inward and financial health is improving
- Utilities that are still in the generation business are pursuing self build
- The natural gas merchant generation sector is still troubled
- Utility relationships with their regulator rules
- The customer is/and will be king for a long time to come

## Focus on Transmission Trends

## Transmission Ownership in the US

- There are 9 Federally owned utilities in the United States, and they operate in all areas except the Northeast, the upper Midwest, and Hawaii.
- _x0004_ Power not generated for profit.
- _x0004_ Publicly owned utilities, cooperatives, and other nonprofit entities are given preference in purchasing from them.
- _x0004_ Primarily producers and wholesalers.
- _x0004_ Producing agencies for some are the U.S. Army Corps of Engineers, the U.S. Bureau of Reclamation, and the International Water and Boundary Commission.
- _x0004_ Electricity generated by these agencies is marketed by Federal power marketing administrations in the U.S. Department of Energy .
- _x0004_ The Tennessee Valley Authority is the largest producer of electricity in this category and markets at both wholesale and retail levels.

## T&D Trends and Challenges

## Siting Issues

- Lack of a strong investment incentive
- Not In My Back Yard
- Multi-state, jurisdiction
- Environmental Concern

- Litigation likely
- Completely independent transmission companies emerging
- Divestitures already occurring and we believe that transmission will be further disaggregated in the future
- New cross border transmission, e.g. Canada to Maine

**Impacts**

## SMD? Wholesale Market Platform? Limbo?

- Common tariff
- Independent control
- Location-based marginal pricing
- License Plate/Postage Stamp
- Market monitoring
- Minimize seam issues

## Generation

## Environment vs. Modern Convenience

## Renewables

- Renewable programs on the increase
- Many utilities have implemented green pricing programs
- States with portfolio requirements
- AZ, CA, CT, HI, IL, IA, ME, MA, MN, NV, NJ, NM, PA, TX, WI
- CA: September 12, 2002. Established the most aggressive renewable portfolio standard in the country by requiring utilities to purchase 20 percent of their electricity from renewable sources by 2017.
- BPA LEADING IN WIND GENERATION AND IN PROVING THE MODEL FOR NORTH AMERICA

## Clean Coal

- Abundance of supply, stable price
- Over 70 plants representing 50,000 MW under exploration
- Technologies
- Gasification
- Fluidized bed
- Super/sub critical with pollution controls
- SO2, Hg, and NOx control advancements, from 1970 to 1998
- SO2 emission rate dropped 76%
- NOX emission rate dropped 58%
- PM-10 (particulate) emission rate dropped 96%

## Nuclear

- Consolidation
- Serious consideration given to new plants
- But...
- security issues have come to the forefront
- waste management

## Wholesale Pricing

- Round-Trip Trades
- Withholding Production
- Serious financial impacts
- Sierra-Pacific, PG&E
- Regardless:
- High prices will occur during times of constraints
- Reliability still going to be a concern around urban markets

## Demand Response: A Utility Imperative

## Utility Industry Syllogisms re: Demand Response

## NW Utilities Leading Nation in DR and Conservation Programs and Success

## Environment Distribution Creating Imperatives For Cost Reduction and Demand Response

## Demand Response Market

- Undergoing Rapid Change
- Third Party Provider Influence Growing
- Utility DR Programs less well received than Third Party Provider programs
- Difficult to size market

## DR Market Changing Rapidly

- Constant factor are ultimate providers of DR:  the retail customers.
- Economic DR will reduce need for emergency DR programs.
- Growing market for DR in providing reliability to utilities, and in ancillary markets with ISOs.
- Third party provider DR programs meet customer needs

## Third Party DR Programs

- Meet customer needs
- Reduced energy expenditures even if no DR events called
- Long term programs
- Little or no risk for customers
- Third Party handles DR response will customer focuses on his/her own business.
- DR event does not significantly impact customer business nor comfort.

## Examples of Third Party Programs

- Electric City programs at ComEd, Xcel Energy
- Based on lighting reductions evenly across customer facility
- Customers use less energy for lighting all the time
- Lighting further reduced during DR events
- Energy Information Services Real time pricing rate for residential buildings in New York City
- Residential building receives electric service under RTP rider from Con Ed
- Individual apartments on time-of-use rate

## Utility Programs Not As Well Managed

- DR programs developed and marketed to meet utility needs
- Tend to be short-run programs
- Customers bear risks
- Customer may receive no benefits if no DR events called
- Customer may face penalties for non compliance
- Programs more complicated for customers
- Some utilities abused customer relationship by changing DR program from emergency only DR to both emergency and economic without explaining program change to customers
- Customers often not paid on timely basis

## DR Market Size

- DR not defined well as of yet.
- DR is expected to increase participation in ancillary markets for ISOs
- Utilities will increase reliance on DR for reliability
- Dynamic pricing will spread across North America for all retail customers
- Impact should be very large
- DR equipment: Advanced metering infrastructure required for dynamic pricing
- Load control equipment:  will move toward direct sales to retail customers.

## Top Ten Dumb Guy Ways To Conserve Energy
10		Quit drinkin' gas
9 		Keep your television on a low setting, no higher than channel 5
8 		Recycle Top Ten List entries
7 		Recycle Top Ten List entries
6 		Host late-night talk show that causes millions of Americans to turn off their 	television sets
5		Crap, that's a hard question... is wrestling on?
4		Instead of motor oil, lubricate your car's engine with Oil of Olay
3.		Turn off the lights at Shea Stadium -- would it really matter?
2		Say goodbye to your electric razor -- get yourself some Epil-Stop & Spray
1 		Go into government -- ignore the problem completely

**10**		Quit drinkin' gas
**9** 		Keep your television on a low setting, no higher than channel 5
**8** 		Recycle Top Ten List entries
**7** 		Recycle Top Ten List entries
**6** 		Host late-night talk show that causes millions of Americans to turn off their 	television sets
**5**		Crap, that's a hard question... is wrestling on?
**4**		Instead of motor oil, lubricate your car's engine with Oil of Olay
**3.**		Turn off the lights at Shea Stadium -- would it really matter?
**2**		Say goodbye to your electric razor -- get yourself some Epil-Stop & Spray
**1** 		Go into government -- ignore the problem completely

## What We Learned This Week

- UtiliPoint’s View of the BPA’s Energizing the Northwest

## I know what it’s like to root for the underdog so you know I can take as well as I give

## Transmission Trend

- Investment in transmission is slowly beginning to increase again to the tune of $286 million per year (EEI) for the last two years

## California....

**California....**

- Conservation and demand response are terrific, but demand is still outpacing supply

## News Flash...

- We learned that transmission is a regional issue – different in different regions of the country

## Really?

- “No control area is an island, entire of itself, every LSE is a piece of the continent, a part of the grid.”
- Paraphrasing John Donne 1623
- ...Unless you are in:
-  ERCOT
- Alaska
- etc.

- "All mankind is of one author, and is one volume; when one man dies, one chapter is not torn out of the book, but translated into a better language; and every chapter must be so translated...As therefore the bell that rings to a sermon, calls not upon the preacher only, but upon the congregation to come: so this bell calls us all: but how much more me, who am brought so near the door by this sickness....No man is an island, entire of itself...any man's death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee."

## Energy Efficiency Growing?

- We learned that BC Hydro has some energy efficiency programs in place that show promise (and that energy transactions have increased 10 – 20 times for Powerex since the wholesale market deregulated.)

**Notes:**
I’M SURE POWEX ISN’T TRADING THE EXCESS GENERATION THAT BC HYDRO PRODUCES

NO, FERC VINDICATED BC HYDRO A FEW MONTHS AGO

## Demand Response in New England

- We learned that there has been some great research done on demand response in New England

## “Utilities Need To Have...”

-  We learned that utilities should “Stop talking about transmission planning and investment AND START DOING SOMETHING!” - According Alison Silverstein
- We also learned that “There is no silver bullet, it takes a variety of potential solutions to solve this problem” – According to Steve Klein, Tacoma Power

## Don’t Let This Happen To Your Co.

## Jon T. BrockCOO, UtiliPoint International and VP Information TechnologyPhone: 505.244.7607Email: jbrock@utilipoint.com

Ethan L. Cohen
Director, Utility and Energy Technology
UtliPoint International
Phone: 617.960.3584
Email: ecohen@utilipoint.com

- Ethan L. Cohen
- Director, Utility and Energy Technology
- UtliPoint International
- Phone: 617.960.3584
- Email: _[ecohen@utilipoint.com](mailto:ecohen@utilipoint.com)_

**Thank You**

**www.utilipoint.com**