Rising Electric Utility Investments Increases Your Need to Pay Attention

Author: Dale Thielen, Account Manager, Kinect Energy

Most likely, without your awareness, 2016 electric utility capital spending will increase your 2017 electricity rates. “How much?” you ask. It depends on various factors including local grid and energy market conditions, regulatory oversight, and stakeholder involvement.

Electric utilities are investing in clean energy and grid modernization to reduce carbon emissions, improve reliability, boost security, integrate central station power with distributed generating resources, and offer consumers more choices.

The Edison Electric Institute (EEI), an investor-owned electric utility trade organization, estimates its member electric companies spent $120 billion in 2016 grid work and clean energy development. To better understand the magnitude of this investment, consider year-end 2015 investor-owned electric utilities’ net assets in service were $898 billion, according to the EEI. Since 2016, capital spending represents over 10 percent of the 2015 net assets in service. Expecting no rate increase would simply be naive.

Regulated electric utility assets have trended upward over the last several years while revenue has trended down. Energy efficiency efforts and offshore (formerly domestic based) U.S. manufacturing has constrained electricity demand, according to the EEI. (Annual growth in electricity output from 2013 to 2015 has been under one-half of one percent.) Spreading increasing fixed costs over fewer megawatt-hours means utilities need to increase rates to adequately recover costs.

Regulators are sensitive to utility cost recovery, so consumers should expect to see continued approval of rate increases. While utility commissions are charged with granting appropriate rate increases, protecting all consumer segments is a balancing act which often yields in favor of the residential rate class. Consequently, commercial and industrial consumers are more frequently participating in rate cases as interveners.

The rate case process involves two primary decisions: identifying allowable costs; and determining cost allocation among the rate classes. All interveners receive a common benefit when their collective efforts reduce the amount of allowable costs. However, interveners often have competing interest on cost allocation. Residential customers are automatic interveners, represented often by the state office of the attorney general. Absent other intervening groups, costs are sure to be allocated to the advantage of residential customers at the cost of commercial and industrial consumers.

Another regulatory proceeding to monitor relates to the electric utility’s long range plan. This “Resource Plan” describes supply and demand side capital initiatives and resulting rate impact scenarios. While these proceedings tend to fall below the public’s “radar,” stakeholders are paying increasingly more attention because of future cost and environmental impact.

As the electric utility industry continues to invest significant capital in transforming the grid and reducing carbon, consumers can ill afford to remain passive. Prepare to engage!

ELECTRIC STORAGE

Storing Electricity the Old-Fashioned Way with New Technology – Pumped Storage Hydropower

Author:  Jean Stammeyer, Account Manager, Kinect Energy

An abundance of technology and research has been dedicated to developing ways to store electricity such as high tech batteries, mechanical flywheels and compressed air energy storage.

However, with the increased supply in wind and solar generation many utilities have turned to a much older, time-tested technology – pumped storage hydropower.  Hydropower has been around since the late 1800s and the origins of the technology reach back thousands of years.  The ancient cultures of Greece and China used water-powered mills for necessary activities such as grinding wheat.  In 1849, an engineer named James Francis developed the Francis Turbine.  This is the same type of turbine most widely used today.

Hydropower Milestones

1849: Invention of the Francis turbine.

1882: The world’s first hydropower plant begins operations in Appleton, Wisconsin, on the Fox River.

1887: The first hydroelectric plant opens in the West, in San Bernadino, California.

1907: Hydropower accounts for 15 percent of U.S. electrical generation.

1920: Hydropower accounts for 25 percent of U.S. electrical generation.

1931: Construction begins on the Hoover Dam, ultimately employing a total of more than 20,000 workers during the Great Depression.

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1937: The Hoover Dam begins to generate power on the Colorado River.

1941-1945: Bureau of Reclamation dams ramped up power output to support America’s efforts in World War II, producing enough electricity to make 69,000 airplanes and 5,000 ships and tanks during a five year period.

1980: Conventional hydropower capacity is nearly triple compared with 1920 level.

Today: A vast expansion of hydropower’s potential is possible through new technologies for conventional, pumped storage and marine and hydrokinetic projects, modernizing existing hydropower facilities and adding generation to existing non-powered dams

Source; DOE

Pumped storage provides grid reliability on a large scale and is an affordable means of storing and deploying electricity.  Pumped storage projects store and generate electricity by moving water between two reservoirs at different elevations.  On nights and weekends when the demand for electricity is low, the surplus energy is used to pump the water to the upper reservoir.  During the work week and on hot summer days when demand for electricity is high, the stored water is released through the turbines in the same manner as a conventional hydro station, flowing downhill from the upper reservoir into the lower reservoir, generating electricity.  The turbine also acts as a pump, moving the water back uphill.

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The U. S. has more than 20GW of pumped storage capacity today.  There are facilities in every region of the country with proposals to develop an additional 31 GW of capacity.  The majority of the projects are currently planned in the west region in support of the increasing amount of variable generation coming on line. Clean and renewable energy sources are constantly evolving creating the need for large scale storage.  New technologies are being developed to store and squeeze energy out of the approximately 80,000 U. S. dams that currently do not produce power.

As of 2015, pumped storage hydropower has provided 97% of the total utility-scale electricity storage in the United States.  Pumped storage hydropower has proven to be a reliable and commercially available, large scale, storage resource.

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The majority of pumped storage hydropower facilities have been developed by utilities, both public and investor-owned.  Independent Power Producers have shown an increased interest in new pumped storage projects and have filed a number of applications for preliminary permits with FERC.  Approximately 80% of the active permits for pumped storage hydropower projects are held by IPPs.
These preliminary permits represent more than 15,000 MW of capacity.

Estimated 62% Growth – Pumped Storage Hydropower by 2050 (51GW)

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Some of the challenges developers face for new pumped storage hydropower projects have to do with environmental issues.  Previously, most operating storage projects required the construction of at least one dam along main stream rivers altering the ecology of the river system and affecting the fish and other wildlife.   A relatively new approach is to locate the reservoirs in areas that are physically separate from existing river systems. These projects are termed “closed –looped” pumped storage and have minimal to no impact to the existing river system.  Once the reservoirs are filled, the additional water requirement is minimal operational make-up water to offset evaporation and seepage losses.

Another signification challenge is the long timeline for development of a new project.  Under the current FERC licensing process, obtaining a new project license to construct takes 3 to 5 years or longer before the developer can begin construction.  Currently the licensing process is the same for both open- looped and closed- looped projects.  At this time there is not an alternative licensing process for low-impact or close-looped projects to shorten the time frame.  In addition to the licensing process, a large scale project will take at a minimum 3 to 5 years or longer to construct depending on the environmental requirements.