Idaho’s Current Energy Picture. Arne Olson, Brian Horii, & Eric Cutter Energy & Environmental Economics, Inc. (E3) Presented to: Energy, Environment and Technology Interim Committee Boise, Idaho July 11, 2006. 353 Sacramento Street, Suite 1700 San Francisco, CA 94111 - PowerPoint PPT Presentation
Idaho’s Current Idaho’s Current Energy Picture Energy Picture Arne Olson, Brian Horii, & Eric Cutter Energy & Environmental Economics, Inc. (E3) Presented to: Presented to: Energy, Environment and Technology Interim Committee Energy, Environment and Technology Interim Committee Boise, Idaho Boise, Idaho July 11, 2006 July 11, 2006 353 Sacramento Street, Suite 1700 San Francisco, CA 94111 Telephone: (415) 391-5100 http:// www.ethree.com
Transcript
Idaho’s Current Idaho’s Current Energy PictureEnergy PictureArne Olson, Brian Horii, & Eric Cutter
Energy & Environmental Economics, Inc. (E3)
Presented to:Presented to:
Energy, Environment and Technology Interim Energy, Environment and Technology Interim CommitteeCommittee
AgendaAgenda Basics about the energy industryBasics about the energy industry Statewide energy demand and Statewide energy demand and
pricesprices ElectricityElectricity Energy Facility SitingEnergy Facility Siting Natural GasNatural Gas Petroleum/Transportation FuelsPetroleum/Transportation Fuels
Roadmap for Developing Roadmap for Developing the Energy Planthe Energy Plan
UnderstaUnderstand where nd where
we are we are todaytoday
Decide Decide where we where we want to want to
go go tomorrotomorro
ww
Figure Figure out the out the
best best ways to ways to
get thereget there
Implement Implement the the
approved approved measuresmeasures
NegotiatNegotiate e
through through legislativlegislative processe process
You are
here
RepeaRepeatt
Goals for Today’s SessionGoals for Today’s Session Get a reasonable understanding of Get a reasonable understanding of
the physical and institutional the physical and institutional workings of Idaho’s energy systemsworkings of Idaho’s energy systems
Understand the “do-nothing” caseUnderstand the “do-nothing” case Begin understanding where the state Begin understanding where the state
has leverage has leverage Understand Idaho’s situation Understand Idaho’s situation
compared to other statescompared to other states
Energy Policy Levers: Energy Policy Levers: What Can the State Do?What Can the State Do?
The state as a The state as a taxingtaxing authority authority The state as a The state as a spendingspending authority authority The state as a The state as a regulatorregulator (utility regulation, (utility regulation,
codes and standards, environment and safety, codes and standards, environment and safety, water rights)water rights)
The state as an energy The state as an energy consumerconsumer The state as an energy The state as an energy producerproducer The state as a The state as a participantparticipant in regional and in regional and
federal processesfederal processes The state as a The state as a moralmoral authority authority
Basics About the Basics About the Energy IndustryEnergy Industry
Basics about Energy Basics about Energy IndustryIndustry
Necessity for public health, safety Necessity for public health, safety and welfareand welfare
Players and playing fieldPlayers and playing field Highly capital intensiveHighly capital intensive Idaho has limited indigenous energy Idaho has limited indigenous energy
resourcesresources Consequences of state regulationConsequences of state regulation Sizing of energy infrastructureSizing of energy infrastructure
Energy is More Than Just Energy is More Than Just Another CommodityAnother Commodity
Affordable, reliable energy is a Affordable, reliable energy is a necessity for public health and safetynecessity for public health and safety
Affordable, reliable energy is a Affordable, reliable energy is a necessity for the functioning of a necessity for the functioning of a modern economymodern economy
Extraction, generation, and delivery of Extraction, generation, and delivery of energy involves facilities with a large energy involves facilities with a large “footprint”“footprint”
The nature of energy necessitates a The nature of energy necessitates a strong degree of public oversightstrong degree of public oversight““Energy is imbued with the public Energy is imbued with the public
interest.” interest.” Roger Hamilton, former Oregon CommissionerRoger Hamilton, former Oregon Commissioner
Who are the Players?Who are the Players? InvestorsInvestors: Shareholders, bondholders, investment : Shareholders, bondholders, investment
banks, lendersbanks, lenders Energy SuppliersEnergy Suppliers: Independent power producers, oil : Independent power producers, oil
& gas exploration and production companies, electric & gas exploration and production companies, electric utilitiesutilities
Bulk Energy TransportersBulk Energy Transporters: Pipelines, transmission : Pipelines, transmission ownersowners
Local Energy DeliverersLocal Energy Deliverers: Electric and gas utilities, : Electric and gas utilities, oil distributors, service stationsoil distributors, service stations
Energy ConsumersEnergy Consumers: Households, businesses, farms, : Households, businesses, farms, public agenciespublic agencies
Federal RegulatorsFederal Regulators: FERC, EPA, FTC, SEC, OSHA: FERC, EPA, FTC, SEC, OSHA State RegulatorsState Regulators: PUC, DEQ, IDWR: PUC, DEQ, IDWR ““The Public”The Public”: As generally represented by NGOs: As generally represented by NGOs
What is the Playing What is the Playing Field?Field?
The Energy Industry is The Energy Industry is Highly Capital-IntensiveHighly Capital-Intensive
Large facilities (generators, refineries, Large facilities (generators, refineries, transmission lines, pipelines) require transmission lines, pipelines) require large upfront investmentslarge upfront investments
Access to capital markets is critical for Access to capital markets is critical for timely development of energy timely development of energy infrastructure infrastructure
Energy, like all commodities, tends to Energy, like all commodities, tends to go through “boom-bust” cyclesgo through “boom-bust” cycles
Idaho has Limited Idaho has Limited Indigenous Energy Indigenous Energy
ResourcesResources No oil, gas or coal resourcesNo oil, gas or coal resources Hydropower resources have all been Hydropower resources have all been
developeddeveloped Some good wind and geothermal Some good wind and geothermal
resources in various locations resources in various locations Most of the energy Idaho consumes is Most of the energy Idaho consumes is
importedimported Energy prices are driven by events Energy prices are driven by events
outside Idahooutside IdahoMost of the dollars that Most of the dollars that
Idahoans spend on energy go Idahoans spend on energy go out of state and do not benefit out of state and do not benefit
the local economy!the local economy!
Regulation and Regulation and CompetitionCompetition
Some energy facilities are competitiveSome energy facilities are competitive Oil & gas production, petroleum refining, Oil & gas production, petroleum refining,
gasoline distribution, electric generationgasoline distribution, electric generation Some energy facilities are regulated as Some energy facilities are regulated as
monopoly franchisesmonopoly franchises Electricity and natural gas distribution Electricity and natural gas distribution
systemssystems Some energy facilities are regulated as Some energy facilities are regulated as
monopolies but are subject to some monopolies but are subject to some competitioncompetition Oil and gas pipelines, electric transmission Oil and gas pipelines, electric transmission
lines, electric generationlines, electric generation
State Regulation of Electric State Regulation of Electric
and Gas Utilitiesand Gas Utilities ““Regulatory compact” took shape in the Regulatory compact” took shape in the
1920s and 1930s1920s and 1930s Utility has the obligation to serve to all customersUtility has the obligation to serve to all customers Utility has the opportunity to earn a fair return on Utility has the opportunity to earn a fair return on
prudent investmentsprudent investments Utilities earn profits by investing in facilities Utilities earn profits by investing in facilities
for which they receive a regulated rate of for which they receive a regulated rate of returnreturn
PUC sets rates to recover utility’s cost of PUC sets rates to recover utility’s cost of service plus return on prudent investmentsservice plus return on prudent investments Evidentiary hearings with multiple participantsEvidentiary hearings with multiple participants
Economic Incentives of Economic Incentives of Utilities under State Utilities under State
Regulation Regulation Because return is based on investment, utilities Because return is based on investment, utilities
have the incentive to make have the incentive to make capital investmentscapital investments Because their rate of return is regulated, utilities Because their rate of return is regulated, utilities
have the incentive to have the incentive to minimize riskminimize risk Utilities have little incentive to encourage Utilities have little incentive to encourage
conservation, because lower sales means less conservation, because lower sales means less revenuerevenue
Incentive to reduce costs is muted because cost Incentive to reduce costs is muted because cost savings must eventually be shared with customerssavings must eventually be shared with customers
““Democracy is the worst form of Democracy is the worst form of government, except for all those government, except for all those
others that have been tried.” others that have been tried.” Sir Winston ChurchillSir Winston Churchill
Sizing of Energy Sizing of Energy InfrastructureInfrastructure
Energy systems have limited capability Energy systems have limited capability to store energy to store energy
This means that suppliers must plan This means that suppliers must plan based on how much energy must be based on how much energy must be delivered in a short period of timedelivered in a short period of time
Peak demand for energy occurs during Peak demand for energy occurs during extreme events:extreme events: Summer heat wave (Electricity “Critical Summer heat wave (Electricity “Critical
Peak”)Peak”) Winter cold snap (Natural Gas “Design Day”)Winter cold snap (Natural Gas “Design Day”) 44thth of July weekend (Gasoline) of July weekend (Gasoline)
Hou
rly L
oad
(MW
)
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
Instantaneous Demand (MW)
Highest InstantaneousDemand
Electric Energy and Electric Energy and CapacityCapacityDelivery Capacity of
Electricity System
Energy (MWh)
Capacity Investments Capacity Investments over Timeover Time
Time
Ener
gy D
eman
d (M
W)
Size of Delivery System
Energy Demand over Time
New Capacity Investment
Time
Ener
gy D
eman
d (M
W)
Ener
gy P
rice
($/M
Wh)
Size of Delivery SystemEnergy Demand over TimeUnregulated Energy Price over TimeRegulated Energy Price over Time Time
Ener
gy D
eman
d (M
W)
Ener
gy P
rice
($/M
Wh)
Size of Delivery SystemEnergy Demand over TimeUnregulated Energy Price over TimeRegulated Energy Price over Time Time
Ener
gy D
eman
d (M
W)
Ener
gy P
rice
($/M
Wh)
Size of Delivery SystemEnergy Demand over TimeUnregulated Energy Price over TimeRegulated Energy Price over Time
Energy Pricing is Energy Pricing is NotNot Driven by Marginal CostsDriven by Marginal Costs
Units of MeasureUnits of MeasureEnergy UnitsEnergy Units
ElectricityElectricity kWh, MWhkWh, MWhNatural GasNatural Gas Therms, Therms,
Note: Data not available for 7/1987 through 12/1988. 2006 prices are deflated using GDP deflator for 2005.
Dol
lars
per
Gal
lon
(200
0 $)
Gasoline Retail Sales PriceIdaho and U.S. Average, Jan 1983 – April 2006
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
HI
CA AZ
NV
NM OR VT WA
WY NJ
NH ID MA
ND CT
ME
GA FL SD MD US
WV
NY IL WI
CO SC MI
KY VA UT
MS
NC
MT AL RI
DE
MN TN LA MO NE TX IN PA OH IA AR KS
OK
Idaho
Dol
lars
per
Gal
lon
In 2005, Idaho Had the 12th Highest Gasoline Retail Sales Price
Note: Data is calculated as simple average of price in the 12 months of 2005. Alaska is excluded because price was not available for July 2005.
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
VT CT
DE
AK
OH
ME IL MI
MA IN MD RI
NH
NC VA SC NV
GA
WV TX AR HI
LA US WI
PA FL OK ID TN NY
OR KS
MT
MO IA ND SD WY AZ
WA
MN UT
CA NE NJ
CO
NM AL
MS
KY
Idaho
$ pe
r Hou
seho
ldIn 2002, Idaho had the 28th Highest Average Household Energy Bill
Note: Transportation expenditures per household for each state were estimated using 2001 household consumption by Census division and 2002 energy prices.
0%
2%
4%
6%
8%
10%
12%W
VA
RM
E LA NC VT SC MT
OH
OK IN IL MI
ND TN ID FL RI
TX SD NM GA
WY AZ
DE
US
NY IA PA OR NV
MS KS
MA
MO CT
AK WI
VA HI
NE
WA
NH
MD CA UT AL
CO
MN NJ
KY
Idaho
In 2002, Idaho's Average Energy Bill as a % of Median Household IncomeWas the 16th Highest in the U.S.
Ene
rgy
Exp
endi
ture
s as
a %
of M
edia
n H
ouse
hold
In
com
e
Note: Transportation expenditures per household for each state were estimated using 2001 household consumption by Census division and 2002 energy prices.
Summary of Statewide Summary of Statewide Energy Demand and PricesEnergy Demand and Prices
Idaho energy prices tend to be lower Idaho energy prices tend to be lower than US averagethan US average
Despite the lower prices, energy is a Despite the lower prices, energy is a larger burden for Idaho households larger burden for Idaho households than in most other statesthan in most other states
Gas and oil prices are near early 1980s Gas and oil prices are near early 1980s levels in real (inflation-adjusted) termslevels in real (inflation-adjusted) terms
High energy prices are probably here High energy prices are probably here to stayto stay
ElectricityElectricity Who are the playersWho are the players Western InterconnectionWestern Interconnection Utility resource planningUtility resource planning Characteristics of the different Characteristics of the different
resource typesresource types Current Idaho utility resource plansCurrent Idaho utility resource plans IPPs and PURPAIPPs and PURPA TransmissionTransmission
The Electric GridThe Electric Grid
Generation:Generation: Can be owned by utility or by Can be owned by utility or by independent power producer (IPP)independent power producer (IPP)
Transmission:Transmission: Generally owned by utility, federal Generally owned by utility, federal rules allow access by third parties (FERC Order 888)rules allow access by third parties (FERC Order 888)
Distribution:Distribution: Owned by utility, regulated by the Owned by utility, regulated by the statesstates
Electricity: Who are the Electricity: Who are the Players?Players?
Investor-Owned Utilities: Avista, Idaho Power, Investor-Owned Utilities: Avista, Idaho Power, PacifiCorp (88% of load, 92% of customers)PacifiCorp (88% of load, 92% of customers)
Municipal Utilities and Rural Electric Cooperatives Municipal Utilities and Rural Electric Cooperatives served by BPAserved by BPA
Electricity consumers (both large and small)Electricity consumers (both large and small) Independent power producers/qualifying facilitiesIndependent power producers/qualifying facilities Other interested parties (environmentalists, water Other interested parties (environmentalists, water
users)users) State PUC, FERC and other government agenciesState PUC, FERC and other government agencies
Idaho utilities are still “vertically Idaho utilities are still “vertically integrated”, i.e., they still own integrated”, i.e., they still own generation, transmission and generation, transmission and
distribution. distribution.
Major Uses of Electricity Major Uses of Electricity in Idahoin Idaho
Idaho has a relatively large industrial Idaho has a relatively large industrial sector with several very large individual sector with several very large individual usersusers Monsanto, Potlatch, Simplot, Micron, Idaho Monsanto, Potlatch, Simplot, Micron, Idaho
Engineering LaboratoryEngineering Laboratory South Idaho irrigators use a lot of South Idaho irrigators use a lot of
electricity during the summer monthselectricity during the summer months Increased saturation of residential air Increased saturation of residential air
conditioning is driving summer peak loads conditioning is driving summer peak loads in southern Idahoin southern Idaho
Existing Generating Existing Generating Resources in the Western Resources in the Western
InterconnectionInterconnection
Western Transmission Western Transmission GridGrid
Utilities need to acquire resources to meet Utilities need to acquire resources to meet growing loadsgrowing loads
Generally use three criteria to evaluate resourcesGenerally use three criteria to evaluate resources Reliability/Needs Determination Reliability/Needs Determination CostCost RiskRisk
““Integrated” Resource Planning (IRP) considers Integrated” Resource Planning (IRP) considers conservation as resource on the same terms as conservation as resource on the same terms as generationgeneration
All the utilities conduct stakeholder processesAll the utilities conduct stakeholder processes IRPs filed with IPUC along with stakeholder IRPs filed with IPUC along with stakeholder
There is no rule or single standard in use across There is no rule or single standard in use across the country to determine resource needsthe country to determine resource needs
In thermal systems, utilities plan to meet peak In thermal systems, utilities plan to meet peak loadsloads E.g., forecasted peak load plus 15% reserve marginE.g., forecasted peak load plus 15% reserve margin
Hydro systems with lots of peaking capacity can Hydro systems with lots of peaking capacity can plan on an energy basisplan on an energy basis E.g., sufficient energy to meet annual needs under E.g., sufficient energy to meet annual needs under
“critical water” conditions“critical water” conditions Neighboring systems may be able to lend a Neighboring systems may be able to lend a
handhand Various processes are going on at NWPCC, Various processes are going on at NWPCC,
WECC, NERC and FERC to develop “resource WECC, NERC and FERC to develop “resource adequacy” standardsadequacy” standards
Risk and Resource Risk and Resource DiversityDiversity
Gas-fired resources are most variable Gas-fired resources are most variable Natural gas prices are highly volatileNatural gas prices are highly volatile 20% of cost is fixed, 80% of cost is variable20% of cost is fixed, 80% of cost is variable
Coal-fired resources are less variableCoal-fired resources are less variable Coal prices are less volatile than gas, but rail Coal prices are less volatile than gas, but rail
transportation requires volatile diesel fueltransportation requires volatile diesel fuel 80% of cost is fixed, 20% is variable80% of cost is fixed, 20% is variable
Conservation and renewable resources have no Conservation and renewable resources have no fuel price volatility, but may have fuel price volatility, but may have availability/timing issuesavailability/timing issues
A diversified resource portfolio will be less risky A diversified resource portfolio will be less risky than a portfolio that relies heavily on a particular than a portfolio that relies heavily on a particular resourceresource
Meeting Daily Electric Meeting Daily Electric Loads with an All-thermal Loads with an All-thermal
SystemSystemH
ourly
Loa
d (M
W)
Peaking Resources (Gas-FiredCombustion Turbine)
Baseload Resources (Coal,Nuclear)
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
Meeting Daily Electric Meeting Daily Electric Loads with a Mixed Hydro-Loads with a Mixed Hydro-
Thermal SystemThermal SystemH
ourly
Loa
d (M
W)
Hydro with StorageIntermediate ThermalThermal BaseloadHydro (Minimum Flow)
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
Value of Intermittent Value of Intermittent ResourcesResources
Intermittent resources generate Intermittent resources generate energy only when the resource is energy only when the resource is availableavailable
Wind fluctuates from hour to hour and Wind fluctuates from hour to hour and even from minute to minuteeven from minute to minute ““Integration” costs additional $5-15/MWhIntegration” costs additional $5-15/MWh
Meeting Daily Electric Meeting Daily Electric Loads with Hydro-Thermal Loads with Hydro-Thermal
Resources and WindResources and WindH
ourly
Loa
d (M
W)
Hydro with StorageWindIntermediate ThermalThermal BaseloadHydro (Minimum Flow)
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
Characteristics of Characteristics of Different Resource TypesDifferent Resource Types
Resource Type
Gas Combined
Cycle Coal Nuclear Wind GeothermalEnergy
Efficiency
CostMed-High
Depending on Gas Prices
Low High High Site-specific Measure-specific
Fuel Price Variability High Medium Low Low Low Low
Environmental Impact Medium High High Low Medium Low or
Net positive
Jobs and Tax Base Small Medium Large Medium Medium Large
Conservation, Energy Conservation, Energy Efficiency and Demand Side Efficiency and Demand Side
ManagementManagement Another way to meet customer Another way to meet customer
electricity needselectricity needs Can be a long-term persistent Can be a long-term persistent
“resource”“resource” Popular in jurisdictions with high retail Popular in jurisdictions with high retail
rates or strong environmental concernsrates or strong environmental concerns Could have negative rate or Could have negative rate or
shareholder impactsshareholder impacts
Value of DSM Programs Value of DSM Programs Depends on Timing of Depends on Timing of
SavingsSavings
Street Light Program
Hou
rly L
oad
(MW
)
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
Street Light Program
Hou
rly L
oad
(MW
)
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
Residential AC Program
Hou
rly L
oad
(MW
)
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
Residential AC Program
Hou
rly L
oad
(MW
)
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
““Peak-Shaving” Programs Peak-Shaving” Programs Aimed at Reducing Peak Aimed at Reducing Peak
DemandDemandPeak-Shaving Program
Hou
rly L
oad
(MW
)
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
Demand-Side MomentumDemand-Side Momentum High fuel costsHigh fuel costs Energy crises of the recent pastEnergy crises of the recent past California $2 billion commitment (3 yrs)California $2 billion commitment (3 yrs) NYSERDA $874 million Energy Smart NYSERDA $874 million Energy Smart
program (5 yrs)program (5 yrs) Avista increased 2005 IRP by 50% over 2003Avista increased 2005 IRP by 50% over 2003 July 31July 31stst roll out of the National Action Plan roll out of the National Action Plan
for Energy Efficiencyfor Energy Efficiency Endorsed by more than 20 state commissionsEndorsed by more than 20 state commissions
DSM Comes in Many DSM Comes in Many FlavorsFlavors
Different types of DSM could be Different types of DSM could be promoted, depending upon value promoted, depending upon value objectives.objectives.
PacifiCorp DSM typesPacifiCorp DSM types1: Fully dispatchable or scheduled firm1: Fully dispatchable or scheduled firm2: Energy efficiency2: Energy efficiency3: Price responsive3: Price responsive4: Behavioral changes4: Behavioral changes
Energy Efficiency Delivery Energy Efficiency Delivery MechanismsMechanisms
Market TransformationMarket Transformation Codes and StandardsCodes and Standards Low interest rate loansLow interest rate loans On-bill financingOn-bill financing Direct install and incentivesDirect install and incentives
DSM – Other IssuesDSM – Other Issues Some jurisdictions provide shareholder Some jurisdictions provide shareholder
incentives to spur implementation.incentives to spur implementation. Benefits accrue in the future for investments Benefits accrue in the future for investments
funded today.funded today. Revenue – Sales decoupling can reduce utility Revenue – Sales decoupling can reduce utility
disincentive to implement EE.disincentive to implement EE. Even EE that is “cost effective” can result in Even EE that is “cost effective” can result in
customer rate increases.customer rate increases. Fewer sales for spreading costsFewer sales for spreading costs Lost returns from reduced salesLost returns from reduced sales Average customer BILLS go down, but the RATE Average customer BILLS go down, but the RATE
increasesincreases
Idaho Resource Needs Idaho Resource Needs over the Next Ten Yearsover the Next Ten Years
Idaho load is growing relatively rapidly, Idaho load is growing relatively rapidly, particularly peak demand in southern Idahoparticularly peak demand in southern Idaho
Total resource gap of ~Total resource gap of ~1200 MW1200 MW on peak on peak in 10 yearsin 10 years
Wide range of resources in play, including Wide range of resources in play, including added transmission and even nuclear in added transmission and even nuclear in 20222022
Annual Load Growth Resources to Fill Gap (MW) for IdahoMW short in 10 years
(for
New Resources in Utility New Resources in Utility IRPsIRPs
0 200 400 600 800 1,000 1,200
Avista
Idaho Power
PacifiCorp
MW
ThermalConservationRenewableLoad ControlQF
Utility IRP Action Plan Resources Selected to Fill Gap(Idaho Portion)
Energy Efficiency in Energy Efficiency in Idaho Utility Resource Idaho Utility Resource
PlansPlans Avista:Avista: Conservation identified in IRP:Conservation identified in IRP: 24 aMW24 aMW Share of Power Council target: Share of Power Council target: 55 aMW55 aMW
Idaho Power:Idaho Power: Conservation identified in IRP: Conservation identified in IRP: 48 aMW48 aMW Share of Power Council target: Share of Power Council target: 242 aMW242 aMW
PacifiCorp:PacifiCorp: Conservation identified in IRP: Conservation identified in IRP: 25 aMW25 aMW Share of Power Council target: Share of Power Council target: 60 aMW60 aMW
Idaho Fuel Mix Now and Idaho Fuel Mix Now and in in
10 years10 years
Hydro31%
Purchases21%
Renewable1%
Thermal47%
Idaho's Existing Energy Resource Mixas a Share of GWh
2005
Hydro32%
Purchases5%
Renewable9%
Conservation2%
Thermal52%
Idaho's Future Energy Resource Mixas a Share of GWh
in 2015
Note: Includes Utility IRP action plan resources selected to fill gap. Based on expected resource mix for Idaho Power in 2012, for Pacificorp in 2015, and for Avista in 2016.
Planned Renewables Planned Renewables Investments Over the Investments Over the
Next 10 yearsNext 10 years Under utility preferred resource strategies, Under utility preferred resource strategies,
approximately 9% of Idaho’s load would approximately 9% of Idaho’s load would served by new renewables in 2015served by new renewables in 2015
Total investment of approximately 260 Total investment of approximately 260 aMW aMW
This is composed of the following:This is composed of the following: Avista: Avista: 13% of retail load by 201613% of retail load by 2016 Idaho Power: Idaho Power: 9% of retail load by 20129% of retail load by 2012 Pacificorp: Pacificorp: 3% of retail load by 20153% of retail load by 2015
Independent Power Independent Power ProducersProducers
Independent power producers (IPPs) Independent power producers (IPPs) gained a foothold with passage of Public gained a foothold with passage of Public Utility Regulatory Policy Act (PURPA) in Utility Regulatory Policy Act (PURPA) in 19781978
Momentum accelerated after EPACT 92 Momentum accelerated after EPACT 92 and FERC Order 888 (1996)and FERC Order 888 (1996)
Today, IPPs generate around 35% of U.S. Today, IPPs generate around 35% of U.S. powerpower
Another possible source of supply for Idaho Another possible source of supply for Idaho utilitiesutilities
Merchant vs. Utility Merchant vs. Utility FacilitiesFacilities
Utility FacilitiesUtility Facilities Developed under Developed under
state regulation in state regulation in conjunction with conjunction with obligation to serve obligation to serve
PUC reviews PUC reviews prudency and sets prudency and sets returnsreturns
Risks and returns Risks and returns shared among shared among utility shareholders utility shareholders and ratepayersand ratepayers
Merchant FacilitiesMerchant Facilities No obligations other No obligations other
than those spelled than those spelled out in contractout in contract
Physical output is Physical output is consumed locally, consumed locally, but economic but economic benefits may accrue benefits may accrue elsewhereelsewhere
Risks and returns Risks and returns borne by merchant borne by merchant shareholders shareholders
PURPA and QFsPURPA and QFs PURPA passed by Congress in 1978 to:PURPA passed by Congress in 1978 to:
Lessen dependence on foreign gas and oilLessen dependence on foreign gas and oil Alleviate inflationAlleviate inflation Improve the balance of paymentsImprove the balance of payments Preserve nation’s nonrenewable resourcesPreserve nation’s nonrenewable resources
Utilities must buy power from Qualifying Utilities must buy power from Qualifying Facilities (QFs) at their “avoided costs”Facilities (QFs) at their “avoided costs”
QFs include cogeneration and small QFs include cogeneration and small renewablesrenewables
Rates, terms, and conditions set by state Rates, terms, and conditions set by state commissionscommissions
PURPA In IdahoPURPA In Idaho Idaho was one of the first states to adopt Idaho was one of the first states to adopt
PURPA and has been one of the most QF-PURPA and has been one of the most QF-friendlyfriendly
Rates, terms, and conditions for QF’s have Rates, terms, and conditions for QF’s have changed several times over the past 25 yearschanged several times over the past 25 years
The fuel types of QFs have varied over the The fuel types of QFs have varied over the past 25 yearspast 25 years
Current PURPA rates around $60/MWhCurrent PURPA rates around $60/MWh Utilities would prefer to acquire renewables Utilities would prefer to acquire renewables
through IRPs rather than PURPAthrough IRPs rather than PURPA
Cumulative PURPA Cumulative PURPA Contracts by Resource Contracts by Resource
TypeTypeIdaho PURPA Contracts
0
100
200
300
400
500
600
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Cont
ract
ed M
W
COGENERATION GEOTHERMAL LANDFILL HYDRO WIND
TransmissionTransmission FERC “Open Access” policies have enabled FERC “Open Access” policies have enabled
competitive generation market but have made competitive generation market but have made transmission planning more challengingtransmission planning more challenging Standards of conduct limit contact between Standards of conduct limit contact between
generation and transmission staffgeneration and transmission staff Transmission is still getting built to serve load Transmission is still getting built to serve load
pockets, but not for interregional transferspockets, but not for interregional transfers Northwest tried for 10 years to form regional Northwest tried for 10 years to form regional
transmission operator, but could not overcome transmission operator, but could not overcome challenge of including BPA challenge of including BPA
in the WECCin the WECC Since 2000, western states and Since 2000, western states and
utilities have co-sponsored utilities have co-sponsored transmission planning effortstransmission planning efforts
A variety of plans for long-distance A variety of plans for long-distance lines have been drawn up and are lines have been drawn up and are seeking supportseeking support ““Frontier Line” from WY to CAFrontier Line” from WY to CA ““Northern Lights” from Fort McMurray to Mid-C or Northern Lights” from Fort McMurray to Mid-C or
AZAZ ““Navajo” from Four Corners to Palo VerdeNavajo” from Four Corners to Palo Verde Undersea cable from Northwest to Bay AreaUndersea cable from Northwest to Bay Area
No major facilities committed to yetNo major facilities committed to yet
Are utilities and other entities Are utilities and other entities achieving enough DSM in Idaho?achieving enough DSM in Idaho?
Are penalties or incentives needed to Are penalties or incentives needed to spur more implementation?spur more implementation?
Are parties implementing the right mix Are parties implementing the right mix of DSM (in the near term and over the of DSM (in the near term and over the long term)?long term)?
To what extent should environmental To what extent should environmental costs and benefits factor into DSM costs and benefits factor into DSM decisions?decisions?
What is the Do-Nothing What is the Do-Nothing Case?Case?
The lights stay on!The lights stay on! Utilities invest in a mix of thermal resources, Utilities invest in a mix of thermal resources,
renewables and conservation, with most of the renewables and conservation, with most of the new energy coming from thermal resourcesnew energy coming from thermal resources
Unclear whether thermal resources will be built Unclear whether thermal resources will be built in-statein-state
High cost of new resources leads to rate High cost of new resources leads to rate increases over timeincreases over time
Idaho utilities acquire less conservation than Idaho utilities acquire less conservation than estimated share of Power Council targetestimated share of Power Council target
PURPA issues played out in front of PUCPURPA issues played out in front of PUC
What are the Leverage What are the Leverage Points?Points?
PUC decisions:PUC decisions: Certificate of Public Convenience and Necessity Certificate of Public Convenience and Necessity
(CPCN) (CPCN) Prudency review and retail ratesPrudency review and retail rates Terms and conditions for QFsTerms and conditions for QFs Treatment of utility revenues lost due to conservationTreatment of utility revenues lost due to conservation
Utility resource acquisitionUtility resource acquisition Use of electricity in state facilitiesUse of electricity in state facilities Taxation of generation facilitiesTaxation of generation facilities Conservation and low-income assistance through Conservation and low-income assistance through
appropriations processappropriations process
Where Does Idaho Sit Where Does Idaho Sit Relative to Other States?Relative to Other States?
Idaho electricity rates are lower than Idaho electricity rates are lower than other statesother states
Idaho uses more electricity than other Idaho uses more electricity than other statesstates
Idaho does more for QFs than other Idaho does more for QFs than other statesstates
Idaho will likely have less renewables Idaho will likely have less renewables than states with portfolio standards, but than states with portfolio standards, but more than states withoutmore than states without
Energy Facility SitingEnergy Facility Siting Energy facilities have a large Energy facilities have a large
“footprint”“footprint” Pipelines and transmission lines cross Pipelines and transmission lines cross
multiple jurisdictionsmultiple jurisdictions Most states have some form of energy Most states have some form of energy
facility siting authorityfacility siting authority EPACT 2005 gets feds involved in EPACT 2005 gets feds involved in
facility siting through national facility siting through national corridors initiativecorridors initiative
Energy Facility Siting: Energy Facility Siting: Current ProcessCurrent Process
Land-use decisions made by local Land-use decisions made by local jurisdictionsjurisdictions
State agencies conduct separate permitting State agencies conduct separate permitting processes (air emissions, wastewater processes (air emissions, wastewater discharge, occupational health & safety, discharge, occupational health & safety, etc.)etc.)
Utility-owned facilities: IPUC issues Utility-owned facilities: IPUC issues Certificate of Pubic Convenience and Certificate of Pubic Convenience and Necessity (CPCN)Necessity (CPCN)
Non-utility-owned facilities: No CPCNNon-utility-owned facilities: No CPCN
Energy Facility Siting: Energy Facility Siting: Many (But Not All) Other Many (But Not All) Other
StatesStates Separate state government agencySeparate state government agency
Permanent commissionPermanent commission Staffed by state employeesStaffed by state employees Local officials sometimes included on commissionLocal officials sometimes included on commission
““One-stop shopping”: One-stop shopping”: Siting agency holds all the hearings, conducts Siting agency holds all the hearings, conducts
environmental impact statement, issues permitsenvironmental impact statement, issues permits Must follow state agency regulations and local Must follow state agency regulations and local
ordinancesordinances Limited or no need standard for merchant Limited or no need standard for merchant
facilitiesfacilities
Key Points for Siting Key Points for Siting SubcommitteeSubcommittee
What is the do-nothing case?What is the do-nothing case? Continued local siting and strong Continued local siting and strong
likelihood of another train wrecklikelihood of another train wreck Where does the state have leverage?Where does the state have leverage?
State has wide latitude to establish State has wide latitude to establish siting processessiting processes
Most, but not all, other states have Most, but not all, other states have state-level energy facility sitingstate-level energy facility siting
Natural GasNatural Gas Natural Gas and ElectricityNatural Gas and Electricity From supply basin to end use From supply basin to end use
customercustomer Supply – Transport – Distribution – Supply – Transport – Distribution –
ConsumptionConsumption Supply and Demand OutlookSupply and Demand Outlook Leverage Points for IdahoLeverage Points for Idaho
Natural Gas and Natural Gas and ElectricityElectricity
Prices less volatile than electricity due to Prices less volatile than electricity due to availability of storageavailability of storage Except around hurricanesExcept around hurricanes
Historically managed on a daily rather than Historically managed on a daily rather than hourly basishourly basis
Electric generation to account for over Electric generation to account for over 54% of natural gas demand growth in PNW54% of natural gas demand growth in PNW
Close relationship between wholesale Close relationship between wholesale prices of gas and electricityprices of gas and electricity
Who are the Players?Who are the Players?
FERC PUC
“Upstream” segments: exploration, production
“Downstream: LDC systems
MarketersMarketersTradersTraders
Interstate Interstate PipelinesPipelines
StorageStorage
Utility Utility (LCD)(LCD)
End Use End Use CustomeCustome
rsrs
ProducersProducersSuppliersSuppliers
Idaho Natural Gas Idaho Natural Gas UtilitiesUtilities
State Regulation of Gas State Regulation of Gas UtilitiesUtilities
Gas commodity purchased on the open market Gas commodity purchased on the open market and passed through (utility makes no margin)and passed through (utility makes no margin)
Large users buy their own gas and pay utility Large users buy their own gas and pay utility for transportation servicefor transportation service
Some states allow choice for smaller Some states allow choice for smaller customerscustomers
Resource plans mostly weigh pipe against Resource plans mostly weigh pipe against storage for meeting design day demandstorage for meeting design day demand
““Decoupling” of revenues from flows helps Decoupling” of revenues from flows helps solve conservation incentive problemsolve conservation incentive problem
FERC RegulationFERC Regulation FERC Order 636 in 1992 led to FERC Order 636 in 1992 led to
“unbundling” of pipelines from supply“unbundling” of pipelines from supply Secondary market for “released” Secondary market for “released”
capacitycapacity Encourages supply basin competitionEncourages supply basin competition Pipeline rates regulated under “just and Pipeline rates regulated under “just and
reasonable” standardreasonable” standard ““Let the market decide” pipeline Let the market decide” pipeline
Canadian and US Canadian and US markets well integratedmarkets well integrated
Utilities purchase Utilities purchase supply on open marketsupply on open market
Canada 80%
1.9 Bcf/d
Rocky Mtn 20%
0.5 Bcf/d
Natural Gas Supply Natural Gas Supply IssuesIssues
High, volatile prices expected to High, volatile prices expected to continuecontinue
Increasing competition for western gasIncreasing competition for western gas Demand continues to growDemand continues to grow Big increases in gas-fired generation and Big increases in gas-fired generation and
oil sandsoil sands Expansion of pipelines eastbound out of Expansion of pipelines eastbound out of
RockiesRockies Possibility of new supplies from Arctic Possibility of new supplies from Arctic
“Frontier Gas” and LNG“Frontier Gas” and LNG
Natural Gas FlowsNatural Gas Flows Canadian and Canadian and
Rockies gas Rockies gas wants to flow wants to flow East for better East for better pricesprices
Canadian and US Canadian and US “conventional” “conventional” gas declininggas declining
Must be replaced Must be replaced by new sources: by new sources: coalbed methane, coalbed methane, Frontier gas, Frontier gas, LNGLNG
Pipeline Pipeline ExpansionsExpansions
Rockies Express 2.0 Bcf/d
Mid-Continent Crossing 1.75 Bcf/d
Continental
Connector
1.0 Bcf/d
Pacific Connector 1.0 Bcf/d
Mackenzie Valley 1.9 Bcf/d
Alaska Highway 6.0 Bcf/d
LNG CostsLNG Costs
Center for Energy Economics
$2.50 – 3.70/MMBtu$2.50 – 3.70/MMBtu
State Natural Gas State Natural Gas ProgramsPrograms
UTUT
COCO
MOMO
Building CodesBuilding CodesAdvanced MeteringAdvanced Metering
Customer ChoiceCustomer Choice
IDID
Public Purpose Org.Public Purpose Org.
System Benefits System Benefits ChargeCharge
DecouplingDecouplingWYWYWA WA OR OR CACA
What is the Do-Nothing What is the Do-Nothing Case?Case?
Continue to send lots of dollars to Continue to send lots of dollars to out-of-state natural gas suppliersout-of-state natural gas suppliers
Tariff rider helps to pay for Tariff rider helps to pay for conservation but utilities still lose conservation but utilities still lose revenuerevenue
Where are the Leverage Where are the Leverage Points?Points?
PUC policies: PUC policies: Utility procurement (spot vs. forward Utility procurement (spot vs. forward
purchases)purchases) Customer choiceCustomer choice DecouplingDecoupling Tariff rider for conservationTariff rider for conservation Promote direct use of natural gas for Promote direct use of natural gas for
water and space heatingwater and space heating Use of natural gas in state facilities Use of natural gas in state facilities
PetroleumPetroleum Petroleum product prices are tied Petroleum product prices are tied
closely to the global market for crude closely to the global market for crude oiloil
All segments of the petroleum industry All segments of the petroleum industry are competitive, but increasingly are competitive, but increasingly concentratedconcentrated
Public involvement in infrastructure Public involvement in infrastructure planning is limited to facility sitingplanning is limited to facility siting
State has few leverage pointsState has few leverage points
Petroleum IndustryPetroleum Industry
Upstream investments based on conditions in global Upstream investments based on conditions in global crude oil marketcrude oil market
Downstream investments based on conditions in local Downstream investments based on conditions in local marketsmarkets
Oil industry is competitive and earns speculative Oil industry is competitive and earns speculative returnsreturns
“Upstream” segments: exploration, production
“Downstream” segments: distribution,
service stations
Sources of Idaho Petroleum Sources of Idaho Petroleum ProductsProducts
Billings via Yellowstone
Pipeline
Salt Lake City via Chevron
Pipeline
Ferndale & Anacortes via Olympic Pipeline,
Tidewater Barge
Vertical Integration of Vertical Integration of Petroleum IndustryPetroleum Industry
““Majors” integrate production, refining Majors” integrate production, refining and distributionand distribution
Variety of wholesale – retail relationshipsVariety of wholesale – retail relationships
Independent Independent (Jobber)(Jobber)
Incentives & Incentives & DiscountsDiscounts
IndependentIndependent
Self supplied Self supplied (Rack)(Rack)
Supply Supply contractcontract
Leasee-Leasee-dealerdealer
UnbrandedUnbranded
Direct supplied Direct supplied (refiner)(refiner)
PricingPricingRefiner Refiner OwnedOwned
BrandedBranded
Wholesale Wholesale DistributionDistribution
Management Management ControlControl
Station Station OwnershipOwnership
BrandingBranding
Leverage Points for Leverage Points for Transportation Fuels Transportation Fuels
SubcommitteeSubcommittee Biodiesel & ethanol productionBiodiesel & ethanol production Biodiesel & ethanol demandBiodiesel & ethanol demand Fleet regulations or incentivesFleet regulations or incentives Home heating oil assistance (mainly NE Home heating oil assistance (mainly NE
Limits on station ownershipLimits on station ownership Regulate retail marginsRegulate retail margins Open access to wholesale supplyOpen access to wholesale supply
22 States provide 22 States provide ethanol production ethanol production and use incentivesand use incentives Tax incentivesTax incentives State fleet State fleet
purchasespurchases 6 states have 6 states have
renewable fuels renewable fuels standardsstandards 2-10%2-10% Price and Price and
production targetsproduction targets
Summary on Petroleum/ Summary on Petroleum/ Transportation FuelsTransportation Fuels
What is the do-nothing case?What is the do-nothing case? Continue to send lots of dollars to out of state Continue to send lots of dollars to out of state
oil companiesoil companies Where does the state have leverage?Where does the state have leverage?
Promoting alternative fuels, state fleetsPromoting alternative fuels, state fleets Where does Idaho sit relative to other Where does Idaho sit relative to other
states?states? Idaho is more vulnerable to oil price shocks Idaho is more vulnerable to oil price shocks
because it (a) has no oil industry and (b) uses because it (a) has no oil industry and (b) uses more oil per capita than other statesmore oil per capita than other states
Promote energy Promote energy development: coal, coal development: coal, coal beneficiation, coal beneficiation, coal gasification, clean coal, gasification, clean coal, electricity, deep gas, coal electricity, deep gas, coal bed natural gas, wind bed natural gas, wind power, ethanol, power, ethanol, conventional oil, conventional oil, enhanced oil recovery enhanced oil recovery and uraniumand uranium
Wyoming Infrastructure Wyoming Infrastructure Authority created to Authority created to help develop help develop transmission projects transmission projects
Policies from 1982 Policies from 1982 Energy PlanEnergy Plan
High priority on conservation, renewables, and high High priority on conservation, renewables, and high fuel efficiency generation before others. High priority fuel efficiency generation before others. High priority to hydroelectric projects.to hydroelectric projects. Carefully consider impacts on agricultureCarefully consider impacts on agriculture Favor conversion to natural gas heatingFavor conversion to natural gas heating Review and update curtailment plansReview and update curtailment plans Consider coal and nuclearConsider coal and nuclear Promote cogeneration and wood fuel.Promote cogeneration and wood fuel. Encourage development of municipal solid waste power.Encourage development of municipal solid waste power. Identify potential for wind developmentIdentify potential for wind development
Promote petroleum and gas conservation, explorationPromote petroleum and gas conservation, exploration Encourage and support local governments in their Encourage and support local governments in their
efforts to promote energy awareness, efficiency and efforts to promote energy awareness, efficiency and resource development.resource development.
Thank you for Thank you for your patience!your patience!
